Columbia Business School
B8306 – Capital Markets and Investments
Spring 2014 Syllabus – Preliminary
Professor Kent Daniel
kd2371@columbia.edu
Office: Uris 421
Finance B8306
Spring 2014
Updated: 10/29/2013
Class Times, Review Sessions, Midterm and Finals:
Class Time/Room†
Optional Review†
Sessions
Midterm Exam
End-of-Term Exam
Section
001
002
MW 12:30-2:00/Uris 332 MW 2:15-3:45/Uris 332
Friday 9-10:30a/Uris 303
and Friday 2:15-3:45pm/Uris 141‡
Thursday March 13 at 9 am, Room TBD
May 8 at 9 am.
I. Course Description:
This is a first course in captial markets and investments. The course has three principal goals:
1. To introduce the principles of asset valuation from an applied perspective. The majority
of the class is concerned with the valuation of financial securities. The valuation issues to
be discussed are heavily used in portfolio management and risk management applications.
2. To introduce the following concepts:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Arbitrage.
The term structure of interest rates.
Portfolio theory, risk-control and diversification.
Equilibrium asset pricing models; the CAPM.
Efficient and inefficient markets.
Performance evaluation.
Pricing and hedging basic derivative securities (futures and options.)
3. To provide sufficient background knowledge for students seeking an overview of capital
markets and an introduction to advanced finance courses.
II. Course Materials:
Textbook: The required textbook for the course is Investments by Bodie, Kane and Marcus
(McGraw-Hill/Irwin), 9th edition (BKM). There is a also a student solutions manual to BKM
which is recommended, but not required.
Course Notes: Notes will be distributed in each class and will be available on Canvas.
Additional Readings: Relevant articles from industry, academia, and the popular press will
be provided throughout the course.
†
‡
Please see the course outline in Section IV for exceptions.
The 2:15pm session on Friday, April 25th will take place in Uris 326.
B8306 – Capital Markets – Daniel – Preliminary Syllabus
2
III. Course Administration:
The course grade will be based on cases, problem sets, class participation and a midterm and
final examination. The weights in your course grade are:
Cases
Problem Sets
Midterm Exam
End of Term Exam
Participation & Quizzes
15%
25%
20%
25%
15%
Cases: There will be four case assignments, but the first case will not be graded. Cases should
be done in groups of 3 members (MBA Assignment Type A). Students are responsible for
organizing these groups, and should add all group members to one of the “Assignment Groups”
available on Canvas. Each case will be distributed at least one class in advance and due by 10
am on the due date. Cases and solutions will be available only in Angel. Submitted cases will be
√
√
√
graded on a + = 3, = 2, − = 1 basis. The three case grades are weighted equally in your
course grades. Because case solutions are discussed in class, late cases will not be accepted
under any circumstances.
Problem Sets: There will be six problem sets. Your worst problem set grade is thrown out –
that is only the highest 5 grades count. As with cases, problem sets should be done in groups of 3
members (MBA Assignment Type A). Students are responsible for organizing these groups. Each
assignment will be distributed one week in advance and is due by 5pm on the due date. Problem
Sets and solutions will be available only in Angel. Submitted problem sets will be graded on
√
√
√
a + = 3,
= 2, − = 1 basis. Although grades will be assigned to six assignments, only
your highest five grades will count towards your course grade. Late problem sets will not be
accepted under any circumstances.
Class Participation: You will gain points by regularly attending class, being prepared, answering questions, asking questions, generally by providing positive externalities to the other
members of the class. You lose points by not coming to class, not participating in the class,
not being prepared, and particularly by distracting or disruptive behavior. Please note that
laptops and cell phones should be turned off
Weekly Canvas Quizzes: Each week, students must take a short quiz on Canvas between
Wednesday at 6pm and the following Monday at 10:30am. Each quiz consists of no more than
three review questions based on the weeks lectures and readings. Quizzes must be taken individually. Any books, references, computing or calculating equipment may be used. Quiz scores
count towards the participation component of your grade. Solutions will be posted soon after
quizzes are due.
Mid-Term Examination: The mid-term exam will be held on Thursday March 13 at 9 am
(room TBA). Any books, references, computing or calculating equipment may be used.
End-of-Term Exam: The end-of-term exam will be on May 8 at 9 am. The exam, like the
mid-term, is open book: any books, references, computing or calculating equipment may be used.
B8306 – Capital Markets – Daniel – Preliminary Syllabus
3
Review Sessions and Office Hours:
There will generally be two review sessions each Fridays – from 9-10:30am in Uris 303, and from
2:15-3:45 in Uris 141. I will conduct one, and the course teaching assistant will run a second
review session. We run two sessions so as to provide you with some extra flexibility and choice.
These sessions are completely optional, and no new material will be covered. In addition to the
weekly review sessions, I will conduct a review session prior to the midterm and final exams.
I prepare nothing new for the review sessions. I am happy to work through the problems in the
problem sets, other problems, to answer questions, or to explain the material in different ways.
Please come prepared with questions.
I have no scheduled office hours; in the past I have found that most students get their questions
answered at the weekly review sessions. However, if you still don’t understand something after
attending the review session you should make an appointment to see either the teaching assistant
for the course, or to see me.
Tips for Studying Finance:
1. Work Problems: In my experience, working problems is an integral part of learning
finance. While intuition is very important, the language of finance is mathematics, and
you will need to learn how to apply this language to make financial decisions. The only
way to learn how to do this is by working problems. Try to work through the the assigned
problem sets on your own before getting together with your homework group. Additionally,
there are problems at end of each chapter in the textbook (BKM), and solutions to these
problems in the Student Solutions Manual for BKM. Finaly, most of the weekly review
sessions will probably be devoted to working through problems.
2. Ask Questions: Ask questions in class. If you have a question about something, you can
be assured that someone else has a similar question. Ask questions at the review sessions.
Ask lots of questions in your homework/case groups.
3. Don’t Fall Behind: Between classes, recruiting, other demands on your time, the spring
term of your first year will one of your most difficult. Keeping up with the material is
important.
B8306 – Capital Markets – Daniel – Preliminary Syllabus
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IV. Course Outline
This is a tentative schedule of topics that will be covered. Class dates and assignment due dates
are subject to change.
Lecture Notes will all be handed out in class, and will also be available on Canvas.
Cls
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
† The
Date
29-Jan
3-Feb
5-Feb
10-Feb
12-Feb
17-Feb
24-Feb
25-Feb∗∗
26-Feb
3-Mar
5-Mar
10-Mar
13-Mar
24-Mar
26-Mar
31-Mar
2-Apr
7-Apr
TBD∗∗
14-Apr
16-Apr
21-Apr
23-Apr
28-Apr
30-Apr
8-May
Sec.†
Intro
Intro
FI
FI
FI
FI
FI
EQ
EQ
EQ
EQ
EQ
EQ
PE
PE
BeFi
BeFi
BeFi
Deriv
Deriv
Deriv
Deriv
Deriv
Deriv
Topic
Course Outline and Background
Shorting, Leverage, and No-arbitrage
Pricing STRIPS and Coupon Bonds
Term Structure of Interest Rates
Interest Rate Risk (Duration)
Risk Management (Immunization)
Interest Rate Swaps
Approaches to Valuation
Diversification
The Efficient Frontier
The CAPM – Theory
The CAPM – Applications
Midterm Examination – 9 am.
CAPM Anomalies
Beyond the CAPM
Performance Evaluation
Biases & Limits to Arbitrage
Empirical Anomalies
Guest Speaker: TBD
Payoffs and Arbitrage Relationships
Replicating an Option
Binomial Model
Black-Scholes Valuation
Applications and Trading Strategies
Derivative Applications/Course Synthesis
End-of-Term Exam – 9 am.
BKM‡
Chptrs
1, 2
2, 3
14
15
16
16
16
5, 18
6
7
8, 9
8, 9
9, 11
10, 13
4, 24
12
12
26, 27
20
21
21
21
21
21
Assign
Case 0
HW 0
Assign
DueDate∗
3-Feb
10-Feb
HW 1
Case 1
19-Feb
17-Feb
HW 2
26-Feb
HW 3
5-Mar
HW 4
Case 2
3-Apr
31-Mar
HW 5
TBD
HW 6
23-Apr
Case 3
28-Apr
course Sections are: Introduction, Fixed Income (FI), Equities (EQ), Performance Evaluation (PE), Behavioral Finance (BeFi), and Derivative Securities.
‡ BKM refers to the textbook by Bodie, Kane and Marcus. You should at least skim the relevant
chapters prior to the lecture.
∗ Case assignments are due by 10:30 am on the due date. Problem Set assigments are due by 5
pm on the due date.
∗∗ Note that there is no class on Wednesday, February 19, or on Wednesday April 9. There is a
regular class on the evening of Tuesday February 25 (room & time TBD), and we will have a
guest speaker the week of April 7 (date, time and room TBD). Attendance for these two sessions
is not mandatory, and both of these will be recorded and posted on the web.