BE312-5-SP-CO: Foundations Of Finance
Department: Essex Business School
Essex credit: 15
ECTS credit: 7.5
Available to Study Abroad / Exchange Students: Yes
Full Year Module Available to Study Abroad / Exchange Students for a Single Term: No
Outside Option: Yes
Pre-requisites: BE300 OR EC111 OR IA712
|Module is taught during the following terms
The course carefully examines the basic building blocks of modern finance theory and focuses on the theoretical and analytical cornerstones on which the building blocks are placed. We study how these building blocks can, in certain cases, help us identify potentially optimal decisions now, even though the future consequences of those decisions are yet uncertain.
A common feature of finance is the need to make good use of and where possible best use of limited resources; constrained optimization techniques can often guide us in this need. Basic concepts in probability are used in finance to describe the inevitable uncertainty regarding the future. Most of us dislike risk and prefer to avoid risk, though only if the price for avoiding that risk is acceptable. We study how expected utility theory helps us measure how averse we are to taking such risks.
We then proceed to use these building blocks to examine several concepts: choice under uncertainty, maximizing returns and minimizing risk subject to constraints, mean-variance analysis and net present value.
The aim of this course is to familiarize you with the basic mathematical tools and the analytical skills necessary to understand modern finance theory.
On completion of the course you should be able to
1. Apply basic mathematical techniques and tools used in modern finance.
2. Describe and evaluate measures of risk aversion using expected utility theory.
3. Understand the concept of 'efficient frontier' when investing in risky assets.
4. Evaluate choices using the net present value approach.
Learning and Teaching Methods
There will be one lecture per week, each of two hours duration, for ten weeks. The primary function of the lecture is to introduce a topic and the main ideas and issues relating to the topic. Lectures are not the venues for describing computational details (for that we use classes). You are expected to do the relevant reading before the lecture. It is strongly recommended, however, that
this should not be the only time you stumble on to the relevant material.
There will be one class per week associated with each lecture, each of one-hour duration, for ten weeks. The class will lag the corresponding lecture by one week. There are weekly class exercises, which will normally be released before the relevant class but after the associated lecture. You are advised to make an attempt at all the exercises. Class work will need to be handed in each week
but are neither marked nor evaluated. Several exercises are solved using the mathematical software called Maple, which can be accessed from the course page on Moodle. It is good to know how to use at least one mathematical and modelling software and Maple is very good for that.
45 per cent Coursework Mark, 55 per cent Exam Mark
Coursework consists of two assignments and two tests (tests are without advance notice). The best three out of the total four pieces of work will count equally towards the coursework mark
Exam Duration and Period
2:00 during Summer Examination period.