University of Connecticut

Financial Mathematics II – Applied Mathematics of Corporate Finance

Math 369

Spring 2007

For an introduction to derivative securities enrollees in this course must also enroll in Math 401, sec. 02 (1 credit) meeting W 4:25-5:15

Classes: M: 3:00 – 4:15                                       Instructor: James G. Bridgeman, FSA

W: 3:00 – 4:14, 4:25-5:15                      MSB408

MSB215                                 860-486-8382 bridgeman@math.uconn.edu

Office Hours: M 10:00 – 11:00,1:00 – 2:00                      websites:

Th  10:00 –12:00,2:00 – 3:00                         instructor’s math.uconn.edu/~bridgeman

F: 10:00 – 11:00                          course: math.uconn.edu/~bridgeman/math369f06/index.html

Or by appointment

Context for the Course

Required for the Professional Master’s degree in Applied Financial Mathematics

Certified for SOA/CAS Validation by Educational Experience (VEE) in Corporate Finance

Contains some material relevant for SOA exams FM and MFE

# Specific Course Content

Introduction to the Applied Mathematics of Corporate Finance

# Required Text

Copeland et al, Financial Theory and Corportate Policy (4th ed.)

Various resources as referenced in the text

Ho & Lee, The Oxford Guide to Financial Modeling

Chew, The New Corporate Finance/where theory meets practice (3rd ed.)

Megginson, Corporate Finance Theory

Brealey Myers Allen, Principles of Corporate Finance (8th ed.)

Panjer (ed.), Financial Economics

Gollier, The Economics of Risk and Time

Term Paper                            25%

Cases & Assignments        25%

Mid-term Exam                      20%

Final Exam                             30%

Both the syllabus and the grading plan are subject to change with appropriate advance notice to the class.

Week of

Topic(s)

# Material

the Wed. seminar on derivative securities will proceed at  a separate pace

Ch. 7

Jan. 15

introduction

Jan. 22

decisions about value; expected cash flow; DCF valuation

handout

Ch. 2A-H

Ch. 14A

Jan. 29

financial statement analysis – where and when is the cash?

Ch. 14B

Feb. 5

risk; variance of cash flow

Ch. 5A-D

Feb. 12

capital asset pricing model (CAPM)

Ch. 5E-F, 6A-H

Feb. 19

market risk premium; arbitrage pricing theory (APT); market efficiency

Ch. 6I-M, 10A-D

Feb. 26

market efficiency: cost of information, evidence

Ch. 10E-G, 11A-F

March 12

market efficiency: evidence; corporate tax effect on value

Ch.11G-H,14C

March 19

financing decisions: capital structure, MM theory

Ch. 15A-E

March 26

financing decisions: capital structure, practical considerations

Ch. 15F-L

April 2

financing decisions: dividend policy: cash plus information

Ch. 16A-F

April 9

dividend policy: effect on value; real options – a new approach to value

Ch. 16G-H, 9A-F

April 16

real options -  where does value come from?

Ch. 9G-J

April 23

review and/or extra topics

TBD

Final Exam TBD week of April 30 – May 5

All

# Term Papers

A paper will be due on April 30. You may choose any of the main topics in the syllabus (i.e. sections in the text or from class notes) and prepare a paper covering the topic in more depth, or presenting extensions of the material in the text or class notes, after consulting outside references.  Alternatively, you may choose a topic from sections of the text not covered in the syllabus and explain how it works, including its connections with the material covered in the syllabus.

Assignments

Significant business cases or sets of text exercises will be assigned for collection and grading occasionally during the semester.  In addition, every week text exercises will be assigned not for collection and grading but to aid with your mastery of the material.  Completion of this work will be assumed on both the mid-term and the final exams.  Finally, background readings may be assigned in text sections not referenced in the syllabus.  These will not be covered in exams, but should be read to enhance your understanding of the material.

Both the syllabus and the grading plan are subject to change with appropriate advance notice to the class.