Faculty of Economics and Business
The University of Sydney
Discipline of Economics
ECOS6021
Financial Analysis
Semester 2, 2006
Unit of Study Outline
The main focus of the course is the valuation of risky assets by financial markets.
Fundamental concepts include the relationship between asset prices and the value of consumption in
various contingencies, implications of absence of arbitrage for asset pricing, optimal decision
making in the face of uncertainty, optimal portfolio selection, and the relationship between asset
prices and the distribution of risk across consumers.
Throughout the emphasis will be on rigorous modelling and precise understanding of logical
and mathematical foundations.
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1. Teaching Staff
Unit of Study Coordinator: Andy McLennan.
Name
Room and building
Phone number
Email
Consultation hours
Andy McLennan
Room 341, Merewether Building (H04)
9351-6607
a.mclennan@econ.usyd.edu.au
Tuesday 2.00-3.00pm or by appointment.
2. Unit of Study Aims
This course is an introduction to mathematical economics and as such has several purposes: i) to
introduce students to the mathematical concepts and methods used by professional economists; ii)
to develop students’ facility to express economic ideas with formal mathematical concepts; and iii)
to develop students’ ability to derive the logical implications of formal economic models.
3. Unit of Study Learning Goals
University and Faculty Learning Goals
Assessment
Understand economic, political, legal, commercial and business issues and apply
fundamental theories and concepts in diverse and unpredictable environments
Midterm & Final exams
Formulate and develop persuasive arguments relevant to major fields of study that can be
applied to business problems
Midterm & Final exams
Think critically about underlying theories, concepts, assumptions and arguments in major
fields of study
Midterm & Final exams
Apply principles, techniques and technologies to data/information relevant to practice in
major fields of study
Midterm & Final exams
Analyse and solve economics problems
Midterm & Final exams
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4. Assessment
4.1.
Types and due dates of assessment
Assessment: Your semester mark will be determined as follows
Mid-semester exam (2 hours) – 30 per cent
Online quizzes related to the assignments – 15 per cent
Final exam (2 hours) – 55 per cent.
The mid-semester exam will be held near the middle of September. The exact date will be confirmed closer
to the time. The final exam will be held in the University’s examination period.
There will be weekly problem sets, that are not to be turned in, but you will be required to do online quizzes
related to them.
4.2.
Explanation of assessment
Midterm Exam
The midterm exam is designed to comprehensively examine your understanding of the fundamental
elements of strategic analysis. The specific material covered from the textbook and the lectures will
be announced the week prior to the midterm.
Final Exam
The final exam is cumulative in that it covers material from the entire semester, including material
already examined in the midterm. The specific material covered from the textbook and the lectures
will be announced in the last week of classes.
4.3.
Academic honesty
Deliberate breaches of academic honesty constitute academic misconduct. These breaches include:
 Plagiarism
 Fabrication of data
 Recycling previously submitted material
 Engaging someone else to complete an assessment on one’s behalf
 Misconduct during supervised assessments
The penalties for academic misconduct may include:
 A mark of zero on the assessment
 A fail grade in the unit of study
 Additional assessment (including an unseen exam)
 Reference of the matter to the University Registrar
Issues concerning breaches of academic honesty may be dealt with either through the process of
determining academic results in a unit of study, or, in the most serious cases, by invocation of
misconduct procedures
Students should consult:
http://www.econ.usyd.edu.au/sio
http://policy.rms.usyd.edu.au/000007x.pdf.
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4.4.
Cover sheet for assessments
There are 10 assignments in this Unit of Study. Additional information will be provided in the first
lecture.
4.5.
Assessment policy and procedures
4.5.1.
Feedback on assessment
The midterm exam will be graded and returned to students near the beginning of October 2006.
4.5.2.
Penalties for late assessments
There is no supplemental midterm exam in this unit of study. If you are unable to write the
midterm exam due to illness or misadventure (which must be correctly documented–see 4.5.4
below), then the weight of the midterm exam transferred to your final exam.
4.5.3.
Policy on calculators
Non-programmable calculators are permitted for the midterm and final exams.
4.5.4.
Special Consideration and additional assessment
Special consideration will only apply to cases of serious illness or misadventure. Applications must
be made with the Student Information Office, within one (1) week of the occurrence of the illness
or misadventure.
Consult
the
Administration
Manual
for
(http://www.econ.usyd.edu.au/content.php?pageid=2383)
or the Student Information Office (http://www.econ.usyd.edu.au/sio) for procedures.
Students
Please note the following:
1. Students will not be granted special consideration if they have attempted a piece of
assessment and then ask for special consideration. If you feel ill-prepared to undertake an
assessment task because of illness or misadventure, then apply for special consideration rather than
attempt the piece of assessment. If you attempt the piece of assessment you are signalling us that
you are prepared for the assessment and need no special consideration. Unless it is impossible for
you to do so, you must contact your tutor or lecturer before the assessment is due if you expect to
miss an assessment task. Failure to do this will weaken your case.
2. Missed in-class tests: No make-up tests will be given if any test is missed. Students missing a
test will have the weight on their final exam increased by the weight of each test missed as long as a
satisfactory Special Consideration form is submitted within one week of the missed test (unless it is
impossible for you to do so). For serious problems, please see your lecturer as soon as you can.
3. Missed final exam and further tests: If you have applied for and are granted special
consideration for a missed final exam then a further test will be held at a date to be determined, but
usually 2-3 weeks after the end of the exam period. To find out whether or not you have been
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granted a further test as well as the date, time, and venue of the test please check notices on the Unit
of Study Blackboard site. You will not receive a personal notification.
IF IN DOUBT ABOUT THESE PROCEDURES PLEASE CONTACT YOUR LECTURER
4.5.5.
Student appeals: Academic and Administrative
A student may appeal against a mark or grade for either a single assessment, or the final assessment
for a whole unit of study. Students are encouraged to consult with their unit of study coordinator in
the first instance.
A student may appeal against an administrative decision.
Consult the Administration Manual for Students
(http://www.econ.usyd.edu.au/content.php?pageid=2383)
or the Student Information Office (http://www.econ.usyd.edu.au/sio) for procedures.
5. Classes
The class for this unit of study meets once per week on Fridays from 1:00-3:00pm in Merewether
Lecture Hall 2. This time will be divided approximately between a 70 minute lecture to present
new material and a 45 minute tutorial to test comprehension through problems and exercises.
6. Prescribed Text
Textbook
S. Leroy and J. Werner, Principles of Financial Economics, Cambridge University Press, 2001.
J. Eichberger and I.R. Harper, Financial Economics, Oxford University Press, 1997.
These textbooks are available from the University Co-operative Bookshop located on the ground
floor of the Noel Martin Sports Complex.
Supplementary Reading
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7. Response to Student Feedback
Feedback from past students has been incorporated into the choice of textbook.
8. Communication Policies
8.1.
Blackboard and other electronic sites
Lecture outlines along with all handouts, announcements about classes or assessment and other
communications will be available on the Faculty's Blackboard site. It is the student’s responsibility
to check the site at least once a week during the semester. The week’s lecture slides will be
available on Blackboard on the Friday evening before the following week’s lecture.
How to get to Blackboard:
Start a web browser, open http://blackboard.econ.usyd.edu.au and click on the Login button:
Login:
Login using your EXTRO account name (for example: extr4358). Your initial password is your date
of birth in the dd/mm/yyyy format. After login you will see a page with all the courses in which you
are enrolled (according to the Student Information Office).
From this point, you can change your password by clicking on the "Personal Information"
link and in the following screen click the "Change Password" link. Type your new password in
twice and click on "Submit" to change the password.
Please note that this password is not linked to the University system, so when you change this
password, it will not update the EXTRO account information.
Further information:
 For problems regarding enrolment, please contact the Student Information Office.
 For technical problems (login questions etc.), please contact the faculty IT department in
room 118 of building H69 (at the rear of the ground floor of the Economics and Business
Building).
8.2.
Email contact policy
Outside of consultation hours and classes, email should be the primary means of contacting the
discipline and individual members of staff. Due to concerns about viruses, anonymous emails and
emails containing unsolicited attachments are unlikely to be opened or read.
8.3.
Phone contact policy
Outside of consultation hours and classes, email should be the primary means of contacting the
discipline and individual members of staff. Please use phone calls only for emergencies.
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9. Student Support
Information on student support services is available from: http://www.usyd.edu.au/su/stuserv/
9.1.
Faculty-based student support
Dr. Michael Paton, Learning Advisor
Room 388, Merewether building
Ph: 9351 5569, email m.paton@econ.usyd.edu.au
Dr. Paton is available to help students experiencing learning difficulties.
9.2.
Admission, enrolment, graduation, course information and student
matters
Contact: The Student Information Office, Merewether Building, City Road
http://www.econ.usyd.edu.au/sio.
9.3.
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Others
Counselling Service: http://www.usyd.edu.au/su/counsel. (free and confidential)
Learning Centre: http://www.usyd.edu.au/su/lc. (develops learning skills)
Mathematics Learning Centre: http://www.usyd.edu.au/su/mlc. (develops mathematical
knowledge, skills and confidence)
International Student Services Unit: http://www.usyd.edu.au/su/issu (provides an integrated
counselling and welfare service to international students)
Disability Services Office: http://www.usyd.edu.au/su/disability. (provides information and
assistance)
10.
Other Resources and Sources of Information
10.1. Computer access
PCs in teaching labs (Economics & Business Building) can be used when the labs are not required
for teaching. There are also 60 PCs provided by the Faculty for access (Merewether building), and
the university has a further 187 PCs located on the main campus that may be used when not in use
for teaching purposes. The Faculty website provides further information on computer facilities
available to students. See http://www.econ.usyd.edu.au/content.php?pageid=117.
10.2. Information on the Faculty website
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Student manual: http://www.econ.usyd.edu.au/StudentManual
Orientation: Teaching and learning, course and course structure, information for sponsors and
parents, local and international students on accommodation, enrolment, semester dates, facilities
and resources, safety and security: http://www.econ.usyd.edu.au/content.php?pageid=13532
Peer Mentoring: http://www.econ.usyd.edu.au/content.php?pageid=12865 (builds a supportive
learning environment and a sense of belonging among postgraduate coursework students)
Transition: http://www.econ.usyd.edu.au/event/28 (provides detailed information on lectures,
tutorials, group work and how they help students achieve successful learning outcomes)
Teaching and Learning: http://www.econ.usyd.edu.au/tl (provides information on the faculty’s
commitment to Teaching & Learning)
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11.
Approximate Week-by-Week Topic Guide
The schedule below is tentative and subject to revision. In addition, the date for the midterm is
subject to revision according to the preferences of class participants. (E&H = Eichberger and
Harper; L&W = Leroy and Werner)
1. Choice under uncertainty and expected utility, E&H Ch. 1, L&W Ch. 8.
2. Risk aversion and increasing risk, E&H Ch. 1, L&W Ch. 9&10.
3. Optimal Portfolios I: one risky asset and CAPM, E&H Ch. 2, L&W Ch. 11.
4. Optimal Portfolios II: multiple risky securities, misc. topics, E&H Ch. 2, L&W Ch. 12.
5. Systems of Financial Markets, E&H Ch. 3.
6. Equilibrium in Financial Markets, linear prices, L&W Ch. 1&2.
7. Arbitrage, E&H Sec. 4.1, L&W Ch. 3.
8. Midterm target date.
9. Asset Valuation I: state prices, L&W Ch. 5&6.
10. Asset Valuation II: options pricing, miscellany, E&H Sec. 4.2, L&W Ch. 4&7.
11. Firms and financial markets, E&H Ch. 5.
12. Credit rationing and insurance, E&H Ch. 1, L&W Ch. 8.
13. Review and Recapitulation.
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