University of Connecticut

Financial Mathematics II

Math 289Q/369

Fall 2003


Classes: MWF: 12:00 – 12:50                                            Instructor: James G. Bridgeman, FSA

                MSB 415                                                                MSB408

Office Hours: M:   3:30 –  4:30                                           860-486-8382                        

                          W:  1:00 –   2:30                                

                            F:10:00 – 11:00                                           instructor's web site

                       Or by appointment                                        course web site


Context for the Course

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

Partial preparation for SOA/CAS course 2 examination on Interest Theory, Economics and Finance

(Next scheduled for Wednesday November 5, 2003)


Specific Course Content

Introduction to the Applied Mathematics of Corporate Finance


Required Text

Brealey & Myers, Principles of Corporate Finance (7th ed.)


Supplemental Material (not required)

Various resources as referenced in the text

Society of Actuaries, Study Note Package for course 2 examination

ACTEX/Mad River Books (distr.), Study Manuals and related material for Course 2 Exam

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

Megginson, Corporate Finance Theory



Term Paper                            10%

2 Take-home Quizzes           10%

Mini-cases                            20%

Mid-term Exam                      25%

Final Exam                             35%




Outline & Intended Pace


Week of



Aug. 25

Financial profession – decisions about value

Financial statements and analysis – where (when) is the cash?



Sept. 1

Valuation principles; Common stock valuation

Ch.2, 4.1-4.4

Sept. 8

Enterprise/project valuation and decision-making

Ch.4.5, 5, 6.1-6.2

Sept. 15

Complex decisions; Portfolio and market risk

Ch.6.3-6.4, 7

Sept. 22

Risk, return and cost of capital; CAPM

Ch.8, 9.1-9.3

Sept. 29

Capital budgeting

Ch.9.4-9.6, 10

Oct. 6

Sources of value; Measurement of value creation

Ch.11, 12

Oct. 13

Market efficiency; mid-term exam (Oct. 17)


Oct. 20

Financing and financing vehicles

Ch.14, 15

Oct. 27

Dividends, debt, and capital structure theory

Ch.16, 17

Nov. 3

Capital structure and financing decisions; (no new material Nov. 5)


Nov. 10

Financing effects on valuation; Financial options

Ch.19, 20.1

Nov. 17

Use, value and pricing of financial options

Ch.20.2-20.3, 21

Dec. 1

Real options and their value; Course review


Dec. 8

Final Exam




Term Papers


One paper will be due on December 3.  Graduate students (369) will choose any of the main

topics (text chapters) in the syllabus and prepare a paper covering it in more depth after consulting

outside references.  Undergraduates (289Q) may do the same, or they may write on a general topic

that will be announced in class early in the semester.




There will be two take-home quizzes assigned, the weeks of Sept 22 and Nov. 17.  They will be

designed to challenge and you may work in teams to come up with the answers.  In addition,

graduate students (369) will  be expected to grade either one set of quizzes or one set of mini-cases.




Graduate students (369) will submit the mini-cases for chapters 6, 9, 11, and 21 within a week

after the completion of the chapter.  Undergraduates (289) will submit the mini-cases for

chapters 6 and 11.  In addition, graduate students (369) will be expected to grade either one

set of mini-cases or one set of quizzes.


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

to the class.