Financial Investments and Corporate Finance

The course aims at giving an in-depth overview of modern portfolio theory and risk management in the context of portfolios of fixed-income securities and stocks. At the end of the course, students are expected to have an understanding of: equilibrium in capital markets from a theoretical perspective; portfolio optimization and risk-return trade-off from an empirical perspective; techniques for measuring and managing risk.
The first part of the course examines risk-return trade-off, portfolio optimization, index models and the implications of modern portfolio theory for the equilibrium structure of expected rates of return on risky assets; the capital asset pricing model, multifactor descriptions of risk, the arbitrage pricing theory.
Instructional objectives that students are expected to achieve:
Equilibrium in capital markets, portfolio theory and practice: to understand theory and empirical evidence behind optimal risky portfolios; capital asset pricing models; arbitrage pricing models, single-index and multifactor models of risk and return.
The second part of the course treats efficient market hypothesis; behavioral finance; fixed-income security analysis, stock analysis, and portfolio performance evaluation.
Instructional objectives that students are expected to achieve:
The efficient market hypothesis, and the behavioural finance: to understand theory and empirical evidence behind well-functioning markets, irrational behaviors and bubbles.
Risk management in the context of fixed-income securities: to understand bond prices and yields, the term structure of interest rates, managing bond portfolios.
Risk management in the context of stock securities: to understand macroeconomic and industry analysis, equity valuation models, financial statement analysis.
Portfolio performance evaluation: to understand the reasons for the use of risk-adjusted indicators, to calculate and use them

After some basic notions of the main internal governance and external environment issues faced by most corporations the course will review a corporation's accounts explaining how they are interrelated and how the can best be analyzed to gauge the health, prospects and value of a business. The course will go through the necessary elements for judging investments (the time value of money, the cost of capital and the identification of the appropriate discount or hurdle rate) and the main decision criteria (IRR, NPV, repayment period). Computational aspects will be dealt with through examples and exercises. Issues of best capital structure and distribution policies will be discussed as well as some of the main issues involved in the decision to hedge risk through futures and options.