University of Connecticut

Financial Mathematics II – Applied Mathematics of Corporate Finance

Math 369

Spring 2006

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

MSB307 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/math369s06/index.html

For an introduction to derivatives enrollees in this course are encouraged also to enroll in

math300, section 31:

W: 4:30 – 5:30 (starting Jan. 25)

MSB307

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 the Corporate Finance Subject

Specific Course Content

Introduction to the Applied Mathematics of Corporate Finance

Required Text

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

(A Solution Manual is available and recommended)

Supplemental/Advanced Material (not required)

Various resources as referenced in the text

Text CD and website mhhe.com/bma8e

Ho & Lee, The Oxford Guide to Financial Modeling

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

Megginson, Corporate Finance Theory

Panjer (ed.), Financial Economics

Gollier, The Economics of Risk and Time

Grading

Term Paper 10%

2 Take-home Quizzes 10%

Mini-cases 20%

Mid-term Exam 25%

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)	Chapter
Jan. 16	The financial profession – decisions about value; cash flow; valuation	Ch.1, 2
Jan. 23	Net present value principle (NPV); opportunity cost of capital; financial statement analysis – where (when) is the cash?	Ch.2 Ch. 29
Jan. 30	Fin’l. stmt.analysis cont’d.; debt valuation; free cash flow; equity valuation	Ch.29, 4
Feb. 6	Project NPV; project decisions/valuation; expected value of cash flow	Ch. 5, 6
Feb. 13	Variance; market price of risk; capital asset pricing model (CAPM)	Ch. 7, 8
Feb. 20	CAPM cont’d.	Ch. 8
Feb. 27	Risk adjusted opportunity cost of capital; handling cash flow uncertainty	Ch.9, 10
March 13	Where value comes from; [mid-term exam March 15 (thru Ch. 10)]	Ch.11
March 20	Measuring value-creation; market returns; market efficiency	Ch.12, 13
March 27	Sources of financing; accessing financing	Ch.14, 15
April 3	Accessing financing cont’d.; dividends and returns	Ch. 15, 16
April 10	Debt leverage and returns; tax and distress effects on expected cash flows	Ch.17, 18
April 17	Debt-adjusted opportunity cost of capital – WACC; debt-adjusted NPV – Adjusted Present Value; valuation summary	Ch. 19
April 24	Real options and their value: when NPV won’t work (easily)	Ch.22
	Final Exam TBD week of May 1 - 6	All

Term Papers

A paper will be due on April 28. You may choose any of the main topics in the syllabus (i.e. chapters in the text) and prepare a paper covering the topic in more depth, or presenting extensions of the material in the text, after consulting outside references.

Quizzes

There will be two take-home quizzes assigned, the weeks of Feb. 13 and April 10. They will be designed to challenge and you may work in teams to come up with the answers. .

Mini-Cases

The mini-cases for chapters 4, 5, 6, 9, 10, and 11 will be due a week after the completion of the chapter.