GOODMAN SCHOOL OF BUSINESS
Department of Finance, Operations, and Information
Systems (FOIS)
Course Number: FNCE 3P96
Course Title: Financial Theory
Times and Locations:
Lectures, discussion, 3 hours per week, S2: M 19:00-22:00 GSB 307; S2: W/F 15:30-17:00 GSB 405
Note: Classes at Brock University complete ten minutes ahead of the hour or half hour to facilitate
transfer time.
Instructor Name:
Email:
Contact:
Office Hours:
Walid, Ben Omrane
wbenomrane@brocku.ca
905 688 5550 x5874
Monday 17:00-18:30
Course Description:
This course aims to introduce basic financial economics’ concepts. These concepts will be used for
4th year level advanced courses. Theory of finance deals mostly with the investment decisions
under uncertainty. We will first review the investment decision in a risk-free world. We will then
deal with the utility and the state preference theories to accommodate for risk. These lead to such
concepts as arbitrage and equilibrium pricing. The capital asset pricing model is also an important
topic covered in this course.
Course Prerequisites:
This course is highly quantitative by nature. Students are assumed to have already passed FNCE
2P91 and 3P93. The required knowledge covers also material from MATH 1P97 and 1P98, and ECON
2P91. Body of knowledge includes basic calculus, matrix algebra, probability and statistics,
distributions, regression analysis. Students are strongly advised to refer to the textbook’s appendix
for reviewing this material. Beside these topics, students are assumed to have followed introductory
micro and macro-economic courses and managerial economics ECON 2P23.
Learning Objectives/Outcomes:
Students will understand and be able to:
•
Analyze consumption and investment decisions,
•
Analyze how optimal individual investment decisions and optimal firm investment decisions
are determined under uncertainty for a given set of security prices,
•
Understand the theory of choice using utility functions and stochastic dominance,
•
Determine efficient portfolios and construct the efficient set,
•
Extend the concept of market equilibrium to determine the market price of risk and the
appropriate measure of risk for a sing asset.
.
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Required readings:
•
•
Class notes (posted on SAKAI).
Covered textbook chapters.
Recommended text book:
Copeland, T.E., Weston, J.F., and K., Shastri. 2004. 4th edition. Financial Theory and Corporate
Policy. Pearson
Course Communications:
Class communication will be posted on SAKAI (Announcement Section), may include:
•
•
Information about midterm exams
Eventual course cancellation…
Check Brock University website for University or Goodman School of Business for other
communications.
Course Evaluation and Dates
Exam
Grade Weight
Date
Exam 1
Exam 2
Project
Quiz
35%
45%
15%
5%
Oct 8th 2022,19:00-21:00 STH202
Nov 18th 2022,19:00-22:00 STH202
Submission Nov 7-21st
S2:2022-11-28, S3:2022-11-30
Important dates:
• Visit the online University calendar for important dates. https://brocku.ca/important-dates/#fall-winter
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Academic Policies
Academic Integrity:
Academic misconduct is a serious offence. The principle of academic integrity, particularly of doing
one’s own work, documenting properly (including use of quotation marks, appropriate paraphrasing
and referencing/citation), collaborating appropriately, and avoiding misrepresentation, is a core
principle in university study. Students should consult Section VII, “Academic Misconduct”, in the
“Academic Regulations and University Policies” entry in the Undergraduate Calendar, available at
http://brocku.ca/webcal to view a fuller description of prohibited actions, and the procedures and
penalties. Information on what constitutes academic integrity is available at
https://brocku.ca/academic-integrity/
This course may use Turnitin.com, phrase-matching software. If you object to uploading your
assignments to Turnitin.com for any reason, please notify the instructor to discuss alternative
submissions.
Intellectual Property Notice:
All slides, presentations, handouts, tests, exams, and other course materials created by the
instructor in this course are the intellectual property of the instructor. A student who publicly posts
or sells an instructor’s work, without the instructor’s express consent, may be charged with
misconduct under Brock’s Academic Integrity Policy and/or Code of Conduct, and may also face
adverse legal consequences for infringement of intellectual property rights.
Special Accommodation:
The University is committed to fostering an inclusive and supportive environment for all students
and will adhere to the Human Rights principles that ensure respect for dignity, individualized
accommodation, inclusion and full participation. The University provides a wide range of resources
to assist students, as follows:
a) If you require academic accommodation because of a disability or an ongoing health or mental
health condition, please contact Student Accessibility Services at askSAS@brocku.ca or 905 688 5550
ext. 3240.
b) If you require academic accommodation because of an incapacitating medical condition, you
must, as soon as practicable, inform your instructor(s) of your inability to complete your academic
work. You must also submit a Brock University Student Medical Certificate (found at
https://brocku.ca/registrar/toolkit/forms). The University may, at its discretion, request more
detailed documentation in certain cases. If you are unable to write a scheduled examination due to
an incapacitating medical condition, you must follow the process set out in the Faculty Handbook
III:9.4.1.
c) If you are experiencing mental health concerns, contact the Student Wellness and Accessibility
Centre. Good2Talk is a service specifically for post-secondary students, available 24/7, 365 days a
year, and provides anonymous assistance: http://www.good2talk.ca/ or call 1-866-925-5454. For
information on wellness, coping and resiliency, visit: http://brockmentalhealth.ca/mental-wellbeing/.
d) If you require academic accommodation on religious grounds, you should make a formal, written
request to your instructor(s) for alternative dates and/or means of satisfying requirements. Such
requests should be made during the first two weeks of any given academic term, or as soon as
possible after a need for accommodation is known to exist.
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e) If you have been affected by sexual violence, the Human Rights & Equity Office offers support,
information, reasonable accommodations, and resources through the Sexual Violence Support &
Education Coordinator. For information on sexual violence, visit Brock's Sexual Assault and
Harassment Policy or contact the Sexual Violence Support & Response Coordinator at
humanrights@brocku.ca or 905 688 5550 ext. 4387.
f) If you feel you have experienced discrimination or harassment on any of the above grounds,
including racial, gender or other forms of discrimination, contact the Human Rights and Equity
Office at humanrights@brocku.ca.
Class conduct:
•
•
•
•
Phones are not permitted during lectures. They must be turned off and put away.
Students are not allowed to take photos or audio record the lecture without the instructor
permission, such an act will result in dismissal from the class and further disciplinary
actions.
All the examinations (midterms and final) are close book exams.
If a student misses an examination (midterm/assignment/Quiz), without any valid
justification and/or ignored the procedure mentioned above, a mark of zero will be
assigned to his examination.
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Tentative schedule of topics
Week 1
Capital markets, consumption, and investment
Class notes
Financial Theory and Corporate Policy, chapter 1
End of chapter problems: 1,2,5
Week 2
State preference theory
Class Notes
Financial Theory and Corporate Policy, chapter 4
End of chapter problems: 4.2,4.4
Week 3
State preference theory
Class Notes
Financial Theory and Corporate Policy, chapter 4
Handout problems: 1
Week 4
Investment decisions under certainty
Class Notes
Handout problems 4,8,10,18,22
Week 5
Utility theory given uncertainty
Class Notes
Financial Theory and Corporate Policy, chapter 3
End of chapter problems: 3,4
Week 6
Utility theory given uncertainty
Class Notes
Financial Theory and Corporate Policy, chapter 3
End of chapter problems: 5,8,9
Week 7
Stochastic dominance
Class Notes
Financial Theory and Corporate Policy, chapter 3
End of chapter problems: 14,16
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Week 8
Stochastic dominance
Class Notes
Financial Theory and Corporate Policy, chapter 3
Handout problems: 1,2
Week 9
Mean variance portfolio theory
Class Notes
Financial Theory and Corporate Policy, chapter 5
Week 10
Mean variance portfolio theory
Class Notes
Financial Theory and Corporate Policy, chapter 5
End of chapter problems: 2,6,7,9
Week 11
Market equilibrium: Capital Asset Pricing Model (CAPM)
Class Notes
Financial Theory and Corporate Policy, chapter 6
End of chapter problems: 2,9,10,13
Week 12
Portfolio theory: Applications to Excel
Class Notes
Financial Theory and Corporate Policy, chapter 5 & 6
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