Financial Investments and Corporate Finance

A.Y. 2019/2020
Overall hours
Learning objectives
Module Corporate Finance
The course aims at providing knowledge of the financial aspects of an enterprise or corporation in order to enable students to assess its prospects, estimate its value, understand the process for deciding the investments underpinning its growth, judge the best way to source funds for such investments, understand hedging and payout decisions, all in the context of the financial and institutional environment in which firms operate.

Module Financial Investments
The course aims at giving an in-depth overview of modern portfolio theory, with a specific focus on risk-return trade-off, portfolio optimization, implementation using index models, and risk management in the context of portfolios of fixed-income securities and stocks.
Expected learning outcomes
Instructional objectives that students are expected to achieve:
Issues of corporate governance and introduction to a company's books. The balance sheet, book equity, market value of equity: value and prices, Enterprise Value
Income and cash flow statements, liquidity and working capital management ratios. Working capital management (cont'd), financial adequacy, profitability and valuation ratios and indicators
Compounding, discounting, the Time Line, Present Value, Future Value, perpetuities, annuities, both simple and growing. Bond's dynamic behavior; risk: corporates and sovereigns; bond ratings; towards a hurdle rate. Market risk-return, diversification and the Capital Assets Pricing Model
Debt expected return, debt beta, WACC, assets beta, hurdle rates. The Modigliani-Miller propositions: assumptions, formulas, predictions. Debt, tax shield, costs and benefits of debt, optimal capital structure
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 efficient market hypothesis, and the behavioral 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.
Course syllabus and organization

Single session

Lesson period
Second trimester
Prerequisites for admission
Basic statistics tools
Assessment methods and Criteria
Written exam; multiple choice tests
Module Financial Investments
Course syllabus
Risk and return (chapter 5)
Returns and excess returns, risk and risk premiums, time series analysis of past rates of return, normal distribution, reward-to-volatility ratios
Capital allocation to risky assets (chapter 6)
Risk and risk aversion, capital allocation across risky and risk-free portfolios, risk tolerance and asset allocation, passive strategies, Capital Market Line
Optimal risky portfolio (chapter 7)
Diversification and portfolio risk, portfolio of two risky assets, asset allocation with stocks, bonds and bills, the Markowitz portfolio diversification model
Index models (chapter 8)
A single-factor security market, the single-index model, the multifactor-index model, the Fama-French Three Factor Model
Equilibrium in Capital Markets (chapter 9, 10)
The Security Market Line, the Capital Asset Pricing Model, the Arbitrage Pricing Theory
The Efficient Market Hypothesis (chapter 11)
The random walk and the efficient market hypothesis, versions of efficient market hypothesis, implications of the efficient market hypothesis, event studies, mutual funds and analyst performance
Behavioral finance and technical analysis (chapter 12)
The behavioral critique, forecasting errors and behavioral biases, technical analysis and behavioral finance
Portfolio performance evaluation (chapter 24)
Adjusting returns for risk, the Sharpe ratio, the Jensen ratio, the role of alpha in performance measures
Teaching methods
Front teaching, discussions, group works, class presentations
Teaching Resources
Bodie, Kane, Marcus "Investments", McGraw Hill, Global edition
Module Corporate Finance
Course syllabus
1 The Corporation
1.1 The Four Types of Firms
1.2 Ownership Versus Control of Corporations
29 Corporate Governance
29.1 Corporate Governance and Agency Costs
29.2 Monitoring the Board of Directors and Others
29.3 Compensation Policies
29.4 Managing Agency Conflicts
29.6 Corporate Governance Around the World
2 Introduction to Financial Statements Analysis
No exam questions
2.1 2.2 2.3 2.4 2.5 2.6
26 Working Capital
All sections
Management 3 Financial Decision Making
No exam questions
No exam questions
4 The Time Value 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8
5 Interest Rates 5.1
5.2 5.3 5.4 5.5
6 Valuing Bonds 6.1
6.2 6.3 6.4 6.5
Interest rates and Time Value of Money
of Money
The Timeline
The Three Rules of Time Travel
Valuing a Stream of Cash Flows
Calculating the Net Present Value Perpetuities and Annuities
Using an Annuity Spreadsheet or Calculator Non-annual Cash Flows
Solving for the Cash Payments
Interest Rates Quotes and Adjustments Application: discount rates and loans The Determinants of Interest Rates Risk and Taxes
The Opportunity Cost of Capital
Bond Cash Flows, Prices and Yields Dynamic Behavior of Bond Prices The Yield Curve and Bond Arbitrage Corporate Bonds
Sovereign Bonds
Firms' Disclosure of Financial Information The Balance SHeet
The Income Statement
The Statement of Cash Flows
Other Financial Statement Information Financial Statements Analysis
10 Capital Markets
10.1 Insightsfrom89YearsofInvestorHistory
10.2 CommonMeasuresofRiskandReturn
10.3 HistoricalReturnofStocksandBonds
10.4 TheHistoricalTrade-offBetweenRiskandReturn 10.5 CommonvsIndependentRisk
10.6 DiversificationinStockPortfolios
10.7 MeasuringSystematicRisk
10.8 BetaandtheCostofCapital
and the Pricing of Risk
12 Estimating the Cost of Capital
12.1 TheEquityCostofCapital
12.2 TheMarketPortfolio
12.3 BetaEstimation
12.4 TheDebtCostofCapital
12.5 AProject'sCostofCapital
12.6 ProjectRiskCharacteristicsandFinancing
7 Investment Decision Rules
7.1 NPV and Stand-Alone Projects
7.2 The Internal Rate of Return Rule
7.3 The Payback Rule
7.4 Choosing Between Projects
8 Fundamentals of Capital Budgeting
8.1 Forecasting Earnings
8.2 Determining Free Cash Flow and NPV
8.3 Choosing Among Alternatives
8.4 Further Adjustments to Free Cash Flow
8.5 Analyzing the Project
14 Capital Structure in a Perfect Market
14.1 EquityVersusDebtFinancing
14.2 Modigliani-MillerI
14.3 Modigliani-MillerII
14.5 BeyondthePropositions
15 Debt and Taxes
15.1 TheInterestTaxDeduction
15.2 ValuingtheInterestTaxShield
15.3 RecapitalizingtoCapturetheTaxShield 15.5 OptimalCapitalStructureWithTaxes
16 Financial Distress, Managerial Incentives and Information
16.1 DefaultandBankrupcyinaPerfectMarket
16.2 TheCostsofBankrupcyandFinancialDistress
16.3 FinancialDistressCostsandFirmValue
16.4 OptimalCapitalStructure:TheTrade-offTheory
16.5 ExploitingDebtHolders:TheAgencyCostsofLeverage
16.6 MotivatingManagers:TheAgencyBenefitsofLeverage
16.7 AgencyCostsandtheTrade-offTheory
18 Capital Budgeting and Valuation with Leverage
18.1 18.2 18.3 18.4 18.5
17 Payout Policy 17.1
17.2 17.3 17.5 17.6
30 Risk Management 30.1
30.2 30.3
20 Financial Options 20.1 20.2 20.3 20.4
OverviewofKeyConcepts TheWeightedAverageCostofCapitalMethod TheAdjustedPresentValueMethod TheFlow-to-EquityMethod ProjectBasedCostofCapital
DistributiontoShareholders ComparisonofDividendsandShareRepurchases TheTaxDisadvantageofDividends PayoutvsRetention SignalingwithPayoutPolicy
Insurance Commodity Price Risk Exchange Rate Risk
Optionbasics OptionPayoffsatExpiration Put-CallParity FactorsAffectingOptionPrices
Teaching methods
Front teaching, labs
Teaching Resources
Module Corporate Finance
SECS-P/09 - CORPORATE FINANCE - University credits: 6
Lessons: 40 hours
Professor: Molajoni Pierluigi
Module Financial Investments
Lessons: 40 hours
Professor: Vandone Daniela
Thursdays from 9:30 to 11:30