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 (8th ed.)

(A Solution Manual is available and recommended)

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 (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.

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;

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.

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