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                   

                       Th/F: 2:00 - 3:00              websites: instructor’s

                       Or by appointment                      course:


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)



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 (8th ed.)

                     (A Solution Manual is available and recommended)


Supplemental/Advanced Material (not required)

Various resources as referenced in the text

Text CD and website

Ho & Lee, The Oxford Guide to Financial Modeling

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

Megginson, Corporate Finance Theory

Panjer (ed.), Financial Economics

Gollier, The Economics of Risk and Time



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



  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. 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)]


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)



Final Exam TBD week of May 1 - 6




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. 




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.   .




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


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