1. Motivation of the course, course description, goals.

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1 New Economic School/Higher School of Economics Fall term 2014 Assistant Professor of Finance Oleg Shibanov, NES Introduction to Finance This version: Motivation of the course, course description, goals. This course is a first course in finance and will cover the basic topics in corporate finance and investments. Core concepts will include the time value of money, opportunity costs, arbitrage pricing, bond valuation, stock valuation, concepts of risk, portfolio theory, asset pricing and market efficiency. Basis statistics needed for learning these concepts will be covered as well. These include measurement of arithmetic and geometric means, expected values, historic and expected variance and covariance. The course is taught in English. The lecture slides, home assignments, the textbook, mid-term and final are all in English. If you feel you have a problem with that please work hard to acquire the vocabulary (it is quite straightforward though). My English is very Russian so it should be easy to follow. 2. Prerequisites. A course in microeconomics, a course in calculus. 3. Course structure. Lectures, Quizzes, Assignments and Final. 1

2 4. Requirements. This course will be taught in English. As such, in addition to the prerequisites students must be at an upper-middle level in English. Students should expect the course to be quite demanding and time consuming: in addition to lectures and weekly review session, student should expect to spend 3 to 7 hours studying for this class each week. Writing in English will be integral to the course. Because this course implicitly is building in a lot of English language development, attendance and participation in class is necessary. Plan on attending every lecture and every session with the teaching assistant. 5. Grading system. Please note all lectures and assignments are in English. You are strongly advised to write your answers to home assignments in English as well. Answers in Russian receive zero points. The course grade will be based on 1) Attendance 10% 2) 4 homework assignments 20% 3) 4 pop quizzes 20% 4) Presentation 10% 5) Mid-term 20% 6) Final 20% Home assignments for this course are may require a lot of work and essay writing. 5.1 Late assignments. Homework assignments turned in more than 1 second late receive a zero. 2

3 5.2 Missing a pop quiz. Missing a pop quiz results in a zero. There is no opportunity for a make up quiz. Pop quizzes will usually, but not always, be given near the beginning of class. Try not to be late to class. 5.3 Absence from class. Attendance is strongly encouraged. In lieu of "excused absences", there is no penalty for the first 4 absences regardless of reason. After the first 4 absences each absence lowers your final grade by 1 point (or 10% of your total class grade), regardless of reason. Do not sign someone else s name on an attendance sheet: it is an academic offense. The penalty for the first offense is loss of your 10% for attendance and you will be referred to NES/HSE administration. The second offense will be referred to NES/HSE administration and this may result in expulsion from the program. The teaching assistant may check the attendance as well. 5.4 Missing the mid-term or final. Should a student miss either the mid-term or the final, if NES/HSE administration has verified that the reason is legitimate, the student may take a comprehensive, covering all material in the course, which can replace either the mid-term or the final. This replacement will be offered approximately one week after the final s date, depending on the scheduling of other evaluation works and other bureaucratic reasons. The professor will determine exact time of the replacement after the final has been administered. If a student s grade for the course is failing, the student retains the right to have one make-up (beyond the replacement mentioned above). It will be written and comprehensive, covering all material in the course. It will be graded by a committee consisting of at least 3 members. 3

4 3.5. Presentation. There will be a group presentation. Students may form groups from 1 to 5 people. The topics of presentations will be discussed and provided during classes. Note that this type of collaborative work assumes that everybody contributes, and free riding will be controlled for in various ways. 6. General evaluation. One mid-term, one final, presentation and 4 pop quizzes. 7. Primary texts. Corporate Finance: An Introduction, third edition by Ivo Welch. For a free version see: There may be additional materials either posted at my.nes.ru or handed out in class. 8. Tentative schedule. 1. Valuation and Capital Budgeting a. Present Value b. Stock and Bond Valuation c. Capital Budgeting Rules d. Uncertainty, Default and Risk 2. Risk and Return a. The history of returns and risk on investments b. Investor Choice: Risk and Reward c. Portfolio Theory d. The Capital Asset Pricing Model (CAPM) 4

5 3. Market Efficiency a. Market Imperfections b. Perfect and Efficient Markets, and Classical and Behavioral Finance 4. Real World Applications a. Capital Budgeting: Applications and Pitfalls b. From Financial Statements to Economic Cash Flows c. Valuations for Comparable and Financial Ratios 5. Capital Structure and Payout Policy a. Corporate Claims b. Capital Structure in a Perfect Market c. Taxes and Capital Structure d. More Imperfect-Market Capital Structure 6. Derivatives and Risk Management 9. Academic Honesty. Unless specifically instructed, all work in this class is to be your own. Representing someone else s work as your own is unethical. If you are caught representing someone else s work as your own, you will receive a zero for the assignment, the midterm/final or quiz. There are no make-ups, make-up assignments, or make-up quizzes in the case of academic dishonesty. Please note that it is very, very easy to be honest. If you are working on an assignment and you get information from a book or website, all you need to do is cite the book or website. Please view and work through this tutorial: On midterm/final and quizzes: giving an answer or taking an answer to a fellow student are both dishonest. Either will result is a zero for the midterm/final or quiz on the first occurrence (and I will inform the NES/HSE administration). The second occurrence will 5

6 result in a failing grade for the course without opportunity to make up the midterm/final or quiz, plus my recommendation that NES/HSE expel you from the program. 6