The George Washington University
School of Business
Course Number:
MBAD 6233
Semester: Spring 2013
Course Title: Financial Markets
Course Description: This course is the first module of two finance classes required for MBA
students. It may not be used to satisfy a second-level academic requirement. Financial markets
allow for the transfer of funds from parties with wealth greater than their (attractive) investment
opportunities to parties with wealth less than their (attractive) investment opportunities.
Efficient financial markets facilitate the maximization of wealth across the economy and the
economic welfare of – consumers, investors, borrowers, producers and employees.
We will first study the valuation of fixed income assets (e.g. bonds) and equity securities.
Important fixed income analytical topics include the term structure of interest rates, time value
of money, duration and convexity. Also of importance are portfolio theory and the capital asset
pricing model and their implications for the required rate of return on and valuation of risky
securities.
Finally risk modeling and management including the valuation and use of derivative securities
(forward contracts, futures contracts, swaps, and options) will be introduced. We will find that
there many volatile and correlated risk factors in financial markets (interest rates, GNP,
employment rates, equity prices, foreign exchange rates, commodity prices, real estate prices,
etc.) all parties existing at a particular point in time (now and in the future) will be impacted
simultaneously by these financial and economic risk factors. Some small percentage of the time
the correlated default of many borrowers and failures of multiple financial institutions (and
potentially governments) can impose extreme economic costs on all parties. We will examine
such contingencies.
Prerequisites: Economics, Financial Accounting and Statistics.
Professor:
Dr. Ted Barnhill
Office: Funger 501 P
202-994-6053 (office phone)
202-994-5014 (office fax)
barnhill@gwu.edu
Office Hours: Tuesday and Wednesday 4 pm to 6 pm and by appointment.
Class: The lectures will develop the concepts and theory of efficient financial markets, security
valuation, and risk modeling and management (what is a “theory”). However finance is an
analytical function of business and requires significant practice and problem solving. Class
sessions will also include problem-solving and question/answer periods. The homework is not
to be submitted. This module only covers selected chapters of the required book; the second
module covers other chapters related to business financial management.
Text: Financial Management: Theory and Practice
Authors: Brigham and Ehrhardt
Edition: 13th
ISBN: 9781439078099
Computers: Students are encouraged to bring laptop computers to class for problem solving
with Excel.
Grading:
Paper 1 – 25%
Paper 2 – 25%
Exam 1 – 25%
Exam 2 – 25%
Total - 100%
ASSIGNMENTS SCHEDULE - MBAD 6233 Section-12 Duques 221
1
Date
Class #
Topic
1/15/2012
1
Overview
Reading
Assignment
(Chapter #)
1
1/22/2012
2
Time Value of Money
4
1/29/2012
3
Bond Valuation
5
2/5/2012
4
6
2/12/20122
5
2/19/2012
6
Paper # 1 due
Risk, Return, and the CAPM
QUIZ (Material
Thru Class #3)
Stock Valuation
2/26/2012
7
3/5/2012
8
Paper # 2 due
Derivative Securities, Risk
Modeling and Management
END EXAMINATION
Problem
Assignment
By Chapter1
None
4: 10, 12, 13,
14, 22, 29
5: 7, 8, 10, 12, 16,
19, 20
6: 4, 6, 9, 12
None
7
8, 23
7: 5, 7, 8, 14
8: 5, 6
None
Recall the old saying “Practice makes perfect.” You are encouraged to work as many of the end of chapter
problems as your time allows.
ASSIGNMENTS SCHEDULE - MBAD 6233 Section-13 Funger 223
3
Date
Class #
Topic
1/16/2012
1
Overview
Reading
Assignment
(Chapter #)
1
1/23/2012
2
Time Value of Money
4
1/30/2012
3
Bond Valuation
5
2/6/2012
4
None
2/13/2012
5
Paper # 1 due
QUIZ (Material
Thru Class #3)
Risk, Return, and the CAPM
2/20/2012
6
Stock Valuation
7
2/27/2012
7
8, 23
3/6/2012
8
Paper # 2 due
Derivative Securities, Risk
Modeling and Management
END EXAMINATION
Problem
Assignment
By Chapter3
None
4: 10, 12, 13,
14, 22, 29
5: 7, 8, 10, 12, 16,
19, 20
QUIZ (Material
Thru Class #3)
6
7: 5, 7, 8, 14
8: 5, 6
None
Recall the old saying “Practice makes perfect.” You are encouraged to work as many of the end of chapter
problems as your time allows.
Paper One – Use data from http://research.stlouisfed.org/fred2/categories/ to develop two
simple linear regression models that allow your group to statistically explain the risk-free US
money market interest rate (i.e., the three-month US Treasury bill yield). Evaluate monthly
data over the July 1990 to March 2001 business cycle. Establish the null hypothesis (H0) and
the alternative hypothesis (HA) for each model. Discuss the descriptive data (i.e., mean,
standard deviation, minimum, and maximum) for the dependent variable and each of the two
independent variables. Graph the dependent versus the independent variables. Indicate why
you selected each independent variable; the variables may not be another interest rate.
Evaluate and compare the goodness of your two models (i.e., the coefficient of determination
or R-square, the root mean square error or standard error of the regression relative to the
standard deviation of the dependent variable, and the sign and significance of the parameter
estimate for each independent variable). Provide a brief economic context of the time period
analyzed the dependent variable and the two independent variables.
Perform the same analysis as discussed above on data drawn from the March 2001 through
December 2012 Period. Compare the models for the two periods. Would the model developed
for the July 1990 to March 2001 period have been useful in explaining the rates for the March
2001 through December 2012 Period?
Emphasize the managerial implications of the analysis. That is, should management track
either of the two independent variables analyzed to assess money market interest rate trends
in the United States? The paper should be approximately seven pages (excluding relevant
statistical printouts and graphs).
Paper Two – There are many risk variables in the global economy. Take the two data sets you
will be provided and analyze and compare the trends, standard deviations, and correlations
among the various variables for the two periods. Discuss the significance of your analysis for
fixed income and equity portfolio managers. What factors explain bank failure rates? Discuss
the significance of your analysis for bank managers, and bank regulators.