This course provides the foundations for valuation and investments. The goal is to provide students with a broad overview of investment vehicles and strategies, including stocks, bonds, mutual funds, portfolio theory, and derivatives. We will develop an analytical framework to understand the valuation of companies, their stocks and bonds, as well as the risk-return characteristics of securities and investment strategies. Specific topics include stock valuation, the Gordon growth model, the term structure of interest rates, defaultable corporate bonds, portfolio selection, models of risk and returns (such as the CAPM, the APT, and the Fama-French multifactor model), market efficiency and anomalies, and derivatives security pricing. At the end of the course, students will be comfortable with the foundations of investments and financial theory and will be ready to make informed decisions about portfolio strategies and security valuation.
The course is analytical in nature and students should be comfortable with probability, statistics, and regression analysis. The use of a spreadsheet package such as Excel will be necessary for homework assignments.