Graduate School of Management & Economics
Sharif University of Technology
Financial Management
44311
Spring Semester 2012
Instructor: Shiva Zamani (zamani@sharif.edu)
Office phone: 66022755
Ext: 147
]
Teaching Assistants: Hooman Karami, Behrang Asadi
Course Objective & Overview
Upon completion of this subject, the student will understand
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What finance is and how financial system works.
The time value of money and the discounted cash flow analysis.
The capital structure.
The importance of asset valuation, the Law of One Price, and the meaning and
role of valuation models.
A conceptual framework of risk management, and the application of hedging,
insuring, and diversifying.
The process of personal portfolio selection, and building a quantitative model
of the trade-off between risk and reward.
The theory and practice of asset pricing including, Capital Asset Pricing
Model (CAPM).
Course materials
The assigned texts for this course are:
1. Bodie and Merton, FINANCIAL ECONOMICS, Prentice Hall, Upper Saddle
River, New Jersey 07458 (2009).
2. Brealey, Myers, and Allen, PRINCIPLES OF CORPORATE FINANCE, 9th
Edition, McGraw- Hill Higher Education (2007).
3. Ross, Westerfield, Jordan, and Roberts, Fundamentals of CORPORATE
FINANCE, Fourth Canadian Edition, McGraw-Hill Ryerson (2002).
4. Ross, Westerfield, and Jaffe, CORPORATE FINANCE, Sixth Edition,
McGraw-Hill Irwin (2002).
The course packet contains the supplementary materials from the following
references:
1. Companion Website of the Book: FINANCE, by Zvi Bodie, and Robert C.
Merton, Prentice Hall (2000), www.prenhall.com/bodie
2. Companion website of the Book: Fundamentals of CORPORATE FINANCE,
Fourth Canadian Edition, by Ross, Westerfield, Jordan, and Roberts, McGrawHill Ryerson (2002), www.mcgrawhill.com/rossfund4
3. Companion website of the Book: CORPORATE FINANCE, Sixth Edition, by
Ross, Westerfield, and Jaffe, McGraw-Hill Irwin (2002), www.mhhe.com/rwj
Syllabus and Course Schedule
Week
Date
1
Sunday 16/11/90
2
3
4
5
Session Topics
Introduction and Class Schedule
Finance
Definition of Finance, Forms of Business Organization, Separation of Ownership
and Management, The Goal of Management, Takeovers.
• (1) Ch 1: pp 1-20.
Sunday 23/11/90
Financial Markets and Institutions
The Financial System, The Flow of Fund, The Functional Perspective, Financial
Markets, Financial Market Rates, Financial Intermediaries, Financial Infrastructure
and Regulation, Governmental and Quasi-Governmental Organizations.
• (1) Ch 2: pp 23-70.
Sunday 30/11/90
Allocating Resources over time
Compounding, Discounting, Multiple Cash Flows, Annuities, Perpetuities, Loan
Amortization, Exchange Rates and TVM, Inflation and DCFA, Taxes and
Investment Decisions.
• (1) Ch 4: pp 108-147.
Sunday 7/12/90
The Analysis of Investment Projects
The Net Present Value Rule, Estimating Projects' Cash Flows, Cost Reducing
Projects, Projects with Different Lives, Mutually Exclusive Projects.
• (1) Ch 6: pp 171-196.
Sunday 14/12/90
The Analysis of Investment Projects
Examples, Questions and Answers.
6
Sunday 21/12/90
Principles of Asset Valuation
The Law of One Price and Arbitrage, Efficient Markets Hypothesis
• (1) Ch 7: pp 193-214.
7
Tuesday 15/1/91
Valuation of Known Cash Flows: Bonds
Using Present Value Formula, Pure Discount Bonds, Coupon Bonds, Current
Yield, Yield to Maturity.
• (1) Ch 8: pp 222-233.
8
9
10
Sunday 20/1/91
Valuation of Known Cash Flows: Bonds
Maturity, Time, Interest Rate
• (1) Ch 8: pp 233-243.
Valuation of Common Stocks
The Discounted Dividend Model
• (1) Ch 9: pp 244-255.
Sunday 27/1/91
Valuation of Common Stocks
Earning and Investment Opportunities, Price/Earning Multiple Approach,
Dividend Policy.
• (1) Ch 9: pp 255-264.
Question and Answers
Sunday 3/2/91
Sunday 10/2/91
11
Wednesday 13/2/91
Tuesday 19/2/91
12
13
14
15
Sunday 24/2/91
Principles of Risk Management
What is Risk, Risk and Economic Decisions, The Risk Management Process, The
Probability Distributions of Returns, Standard Deviation as a Measure of Risk.
• (1) Ch 10: pp 267-295.
Hedging, Insuring, Diversifying
The Diversification Principle, Diversifiable Risk, Nondiversifiable Risk.
• (1) Ch 11: pp 296-332.
Portfolio Opportunities and Choice
The Process of Personal Portfolio Selection, The Trade-Off between Expected
Return and Risk, Efficient Diversification with Many Risky Assets.
• (1) Ch 12: pp 333-358.
Questions and Answers
Midterm Exam
Portfolio Opportunities and Choice
Examples
Capital Market Equilibrium
The Capital Asset Pricing Model (CAPM), Risk Premium, Beta, Using CAPM in
Portfolio Selection.
• (1) Ch 13: pp 359-370.
Capital Market Equilibrium
CPM and Asset Valuation, CAPM and Cost of Capital, Alternatives of CAPM.
Examples
• (1) Ch 13: pp 370-376.
Sunday 31/2/91
Financial Structure of the Firm
Equity Financing, Debt Financing, The Irrelevance of Capital Structure in a
Frictionless Environment, Creating Value Through Financing Decisions, Reducing
Costs, Dealing with Conflicts of Interest.
• (1) Ch 16: pp 433-450.
Sunday 7/3/91
Financial Structure of the Firm
How to Evaluate Levered Investments, Examples
• (1) Ch 16: pp 451-454.
Questions and Answers
Instructional method
Each session is capped by a lecture and discussion. The main reference book (Bodie
& Merton) is meant to be studied carefully, and I would emphasize that the handouts
and discussions are certainly not sufficient to complete the course.
Grading (Evaluation)
Assignments
20%
Midterm Exam
40%
Final exam
40%
Examinations
The midterm exam will be held on Wednesday 13/02/91, and the final exam will be
held on Date. The Exams are based on lectures and readings presented during the
term.
Assignments
Four home works are designed for this semester. All students must deliver their
home works at the due dates as handwritten hardcopies. For a delay up to 2 days,
one will loose 30% of the points, and for more than 2 days, one will not get the
points. The due dates of the home works are as follows.
Homework No.
Due Dates
1
7/12/90
2
21/12/90
3
27/1/91
4
31/2/91
Office hours
With rare exceptions announced in advance, I will be available on Sundays and
Tuesdays 12:15-13:00. For setting an appointment, you can call Ms. Khoyvandi Ext:
137 or e-mail me (zamani@sharif.edu).
This course is delivered in the framework of "Official Educational Rules for Graduate
Programs in Sharif University of Technology".