Program : M1 EBA
Academic Year 2019-2020
Class Syllabus
Instructor: ARBULU Pedro / Assistant Professor in Finance / EBA Program Director
Class: UE 1.1.8 FINANCIAL MATHEMATICS
Length: 30 hours (15 hours in-class lessons / 15 hours of personal/group work in outside-class).
The course will take place from October to November. One lecture by week.
In class time we’ll explore topics in greater depth thanks to independently student's work or in small
groups on an application task (readings, practicing, watching online videos).
COURSE OBJECTIVES:
This course introduces the main rules of quantitative analysis in Corporate Finance. It
explains and applies the fundamental principles of financial mathematics. It provides a
reflection on mathematical tools and their application in the financial decision-making
process.
LEARNING OBJECTIVES:
The focus of this course is how to measure optimal corporate financial decisions. For a
financial manager, evaluating financial decisions involves computing the value of future cash
flows. I take from the textbook Corporate Finance of Berk/DeMarzo three chapters. Chapter
n°3 “Financial Decision Making and the Law of One Price”. It introduces the most important
idea of this lecture, the concept of the absence of arbitrage. Chapter n°4 “The Time Value of
Money” uses the Law of One Price to derive a central concept in financial economics –the
time value of money. Chapter n°5 “Interest Rates” considers how to use the market interest
rates to determine the appropriate discount rate for a set of cash flows.
COURSE DESCRIPTION:
Introduction: Corporate Financial Decisions
Part One: Financial Decision Making
1.1 Valuing Decisions
1.2 Interest Rates and the Time Value of Money
1.3 Present Value and the NVP Decision Rule
1.4 Arbitrage and the Law of One Price
Part Two: Time, Money and Interest Rates
2.1 The Time Value of Money
2.2 Valuing a Stream of Cash Flows
2.3 Perpetuities and Annuities
2.4 The Internal Rate of Return
Part Three: Interest Rates
3.1 Interest Rates Quotes and Adjustments
3.2 The determinants of Interest Rates
3.3 Risk and Taxes
3.4 The Opportunity cost of Capital
List prerequisite course(s):
Mathematic and economy basic knowledges
Open minded attitude to the financial reasoning
TEACHING METHODOLOGY:
The instructional strategy of the program is the flipped classroom a type of blended learning.
The lectures, home works, tests are delivered online through MyLab Finance from Pearson
and the students engage in concepts in the classroom with the instructor. The textbook of the
program is “Corporate Finance” J. Berk and P. DeMarzo. The Chapter 3 “The Law of One
Price” is the one unifying principle that underlies all of financial economics and links all of
the ideas throughout this program. The Chapter 4 “The Time Value of Money” explains how
to value a stream of future cash flows and derive a few useful shortcuts for computing the
NPV of various types of cash flows. The chapter 5 “Interest Rates” applies the Law of One
Price to demonstrate that the discount rate will depend on the rate of return of investments
with maturity and risk similar to the cash flows being valued.
Course requirements include regular attendance and participation in class, readings from the
textbook, the midterm and final examinations.
Midterm Exam (online quiz): 40%
Final Exam (in-class exam): 40%
Class Participation: 20%
BIBLIOGRAPHY:
Pearson’s MyLab Finance & Mastering program and the textbook of Berk/DeMarzo:
Corporate Finance, 4/e, Global Edition.
INTERNET SITES:
https://www.bloomberg.com/markets/rates-bonds
https://finance.yahoo.com/