University of Connecticut

Financial Mathematics II – Applied Mathematics of Corporate Finance

Math 369

Fall 2006

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

MSB215 MSB408

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

Th 10:00 –12:00 bridgeman@math.uconn.edu

Th/F: 2:00 - 3:00 websites: instructor’s math.uconn.edu/~bridgeman

Or by appointment course: math.uconn.edu/~bridgeman/math369f06/index.html

For an introduction to derivatives enrollees in this course must also enroll in math300, section 05: (1 credit)

W: 4:25 – 5:15 MSB215

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

Specific Course Content

Introduction to the Applied Mathematics of Corporate Finance

Required Text

Ho & Lee, The Oxford Guide to Financial Modeling

Supplemental/Advanced Material (not required)

Various resources as referenced in the text

website www.thomasho.com

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

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

Megginson, Corporate Finance Theory

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

Panjer (ed.), Financial Economics

Gollier, The Economics of Risk and Time

Grading

Term Paper 20%

Cases & Assignments 25%

Mid-term Exam 20%

Final Exam 35%

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

Outline & Intended Pace
Week of	Topic(s)	Material
Aug. 28	decisions about value; expected cash flow; valuation: DCF; risk: OCC	Ch.1, class notes
Sept. 4	financial statement analysis – where (when) is the cash?	handouts, notes, pages 506-509
Sept. 11	efficient market hypothesis; cash flow variance; CAPM	Ch. 2, class notes
Sept. 18	CAPM and alternatives; market price of risk; certainty equivalents	Ch. 2, class notes
Sept. 25	valuation of the firm: comparables; dividend discount; cost of equity	Ch. 12, class notes
Oct. 2	valuation within the firm: debt; FCF; WACC; MM theory; taxes	Ch. 12, class notes
Oct. 9	valuation within the firm: alternatives to DCF; FCF discount; rebalancing	Ch. 12, class notes
Oct. 16	mid-term exam Oct. 16; practical valuation issues	class notes
Oct. 23	practical valuation issues; where does value come from?	class notes
Oct. 30	option value model; growth and real options	Ch. 12, Ch. 13
Nov. 6	strategic value of the firm; strategic value within the firm	Ch. 13
Nov. 13	option value vs. DCF; financing decisions: MM, pecking order, Lintner	Ch. 13, Ch. 14
Nov. 27	financing decisions: trade-off; cost of distress	Ch. 14
Dec. 3	financing decisions: contingent claim point of view; final review	Ch. 14, class notes
	Final Exam TBD week of Dec. 10 - 15	All

Term Papers

A paper will be due on Dec. 7. 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.

Cases and Assignments

Significant business cases or homework exercises based on the material most recently covered will be assigned approximately every two weeks.