University of Connecticut

Financial Mathematics II

Math 289/369

Fall 2004


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

                MSB 211                                                MSB408

Office Hours: M & Th   10:00 – 12:00              860-486-8382                        

(note changes)     W:   12:30 – 2:00          

                           F:      1:30 – 3:00                         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 Nov. 3, 2004)

Anticipated to be certified for SOA/CAS Validation by Educational Experience (VEE)


Specific Course Content

Introduction to the Applied Mathematics of Corporate Finance


Required Text

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


Supplemental/Advanced Material (not required)

Various resources as referenced in the text

Society of Actuaries, Study Note Package for course 2 examination, see

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

Ho & Lee, The Oxford Guide to Financial Modeling

Panjer (ed.), Financial Economics



Term Paper                            10%

2 Take-home Quizzes           10%

Mini-cases                            20%

Mid-term Exam                      25%

Final Exam                             35%

Although graduate students (369) and undergraduates (289) will take the same quizzes and exams, the

grading will be adjusted to demand higher performance from the graduate students.





Outline & Intended Pace


Week of



Aug. 30

Financial profession – decisions about value; cash flow; valuation;

Net present value principle; opportunity cost of capital

Ch.1, 2

Sept. 6

Financial statement analysis – where (when) is the cash?

Ch. 29

Sept. 13

Free cash flow; equity valuation; project net present value

Ch.4, 5

Sept. 20

Project decisions/valuation; expected value of cash flow; variance of returns

Ch. 6, 7

Sept. 27

Market price of risk; capital asset pricing model

Ch. 8

Oct. 4

Risk adjusted opportunity cost of capital; handling cash flow uncertainty

Ch. 9, 10

Oct. 11

Where value comes from; measuring value-creation

Ch.11, 12

Oct. 18

Market returns; market efficiency; mid-term exam Oct. 18 (thru Ch. 12)


Oct. 25

Sources of financing; accessing financing

Ch.14, 15

Nov. 1

Dividends and returns; debt leverage on returns

Ch.16, 17

Nov. 8

Debt effects on expected cash flows

Ch. 17, 18

Nov. 15

Debt-adjusted opportunity cost of capital -- WACC


Nov. 29

Option cash flows; valuation when net present value won’t work

Ch. 20, 21

Dec. 6

Real options and their value



Final Exam TBD week of Dec. 13 - 18




Term Papers


A paper will be due on December 8.  Graduate students (369) will choose any of the main

topics (text chapters) in the syllabus and prepare a paper covering it in more depth, or presenting

extensions of the material in it, after consulting outside references.  Undergraduates (289) 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. 27 and Nov. 15.  They will be

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




Graduate students (369) will submit the mini-cases for chapters 3, 4, 5, 6, 9, 10, 11, and 21 within a week

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

chapters 3, 4, 5, 6 and 11.  


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

to the class.