University of Connecticut

Financial Mathematics II – Applied Mathematics of Corporate Finance

Math 369

Spring 2007

For an introduction to derivative securities enrollees in this course must also enroll in Math 401, sec. 02 (1 credit) meeting W 4:25-5:15

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

W: 3:00 – 4:14, 4:25-5:15 MSB408

MSB215 860-486-8382 bridgeman@math.uconn.edu

Office Hours: M 10:00 – 11:00,1:00 – 2:00 websites:

Th 10:00 –12:00,2:00 – 3:00 instructor’s math.uconn.edu/~bridgeman

F: 10:00 – 11:00 course: math.uconn.edu/~bridgeman/math369f06/index.html

Or by appointment

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

Contains some material relevant for SOA exams FM and MFE

Specific Course Content

Introduction to the Applied Mathematics of Corporate Finance

Required Text

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

Supplemental/Advanced Material (not required)

Various resources as referenced in the text

Ho & Lee, The Oxford Guide to Financial Modeling

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 25%

Cases & Assignments 25%

Mid-term Exam 20%

Final Exam 30%

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
	the Wed. seminar on derivative securities will proceed at a separate pace	Ch. 7
Jan. 15	introduction
Jan. 22	decisions about value; expected cash flow; DCF valuation	handout Ch. 2A-H Ch. 14A
Jan. 29	financial statement analysis – where and when is the cash?	Ch. 14B
Feb. 5	risk; variance of cash flow	Ch. 5A-D
Feb. 12	capital asset pricing model (CAPM)	Ch. 5E-F, 6A-H
Feb. 19	market risk premium; arbitrage pricing theory (APT); market efficiency	Ch. 6I-M, 10A-D
Feb. 26	market efficiency: cost of information, evidence	Ch. 10E-G, 11A-F
March 12	market efficiency: evidence; corporate tax effect on value	Ch.11G-H,14C
March 19	financing decisions: capital structure, MM theory	Ch. 15A-E
March 26	financing decisions: capital structure, practical considerations	Ch. 15F-L
April 2	financing decisions: dividend policy: cash plus information	Ch. 16A-F
April 9	dividend policy: effect on value; real options – a new approach to value	Ch. 16G-H, 9A-F
April 16	real options - where does value come from?	Ch. 9G-J
April 23	review and/or extra topics	TBD
	Final Exam TBD week of April 30 – May 5	All

Term Papers

A paper will be due on April 30. 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.

Assignments

Significant business cases or sets of text exercises will be assigned for collection and grading occasionally during the semester. In addition, every week text exercises will be assigned not for collection and grading but to aid with your mastery of the material. Completion of this work will be assumed on both the mid-term and the final exams. Finally, background readings may be assigned in text sections not referenced in the syllabus. These will not be covered in exams, but should be read to enhance your understanding of the material.