BØK 1121 Finance I
This introductory course aims at providing basic skills in applying financial mathematics and analysis of profitability related to firms' real investments. The analysis assumes understanding of risk and how it needs to be taken into account when the appropriate rate of return on invested capital is determined. As such the course also gives an introduction to capital market theory since rates of return are derived based on the notion that they represent an opportunuty cost in well-functioning markets.
Upon completing the course, it is expected from students that they:
- Understand how financial mathematics (application of different discounting models) facilitates correct estimation of the time value of money.
- Understand how different models used to analyse profitability (net present value, internal rate of return, payback) enables estimation of the expected return on real investments.
- Understand how portfolio theory and diversification among investments helps identify relevant (systematic) and irrelevant (unsystematic) risk.
- Understand why the capital asset pricing model (CAPM) results in required rates of return taking into account only relevant risk for investors in well-functioning markets.
Having completed this course, it is expected that students know how to:
- To apply financial mathematics (discounting models) in order to correctly calculate time value of money.
- To apply different models of profitability (net present value, internal rate of return, payback) in order to estimate real investments expected return.
- Apply portfolio theory and the notion of diversification to distinguish between relevant (systematic) and irrelevant (unsystematic) risk for investors.
- Applying the Capital Asset Pricing Model (CAPM) in order to calculate expected (required) rates of return taking into account, and including, only investors' exposure to relevant (systematic) risk in well-functioning markets.
A main focus of the course is understanding the assumptions upon which the different models of profiability are based. Successful application requires comprehension of the models' limitations in practical use.
- Introduction: Brief overview of main topics
- Financial mathematics
- Models of profitability and decison criteria applied when applying the net present value principle, the internal rate of return and payback models.
- Portfolio diversification and estimation of relevant risk.
- Capital asset pricing model to estimate the risk-adjusted, required rate of return.
There are 13 sessions in 3 hours (39 hours). In addition, 2 sessions of 3 hours (6 hours) come with a review of previous exam questions. A total of 45 lectures are given in the course.
In order to help stimulate an active and inspiring learning environment, two-way communication with students is attempted. It is students' responsibility to regularly participate during lectures with questions and comments. The lecturer may ask students to answer problems raised in class.
Students are expected to attend seminar groups to ensure that the learning process is continuous. In this way, a deeper understanding of the subject is achieved. Seminar groups led by experienced students are offered throughout the semester on specified dates.
Use of excel software is applied to selected assignment topics during the semester.
Higher Education Entrance Qualification
Due to the Covid-19 pandemic, there may be deviations in teaching and learning activities as well as exams, compared with what is described in this course description.
Basic-courses in mathematics and statistics given during the first year of the programme.
|Exam category||Weight||Invigilation||Duration||Support materials||Grouping||Comment exam|
Form of assessment:
Internal and external examiner
Examination every semester
|Form of assessment:||Written submission|
|Support materials:|| |
|Resit:||Examination every semester|
Feedback activities and counselling
Prepare for teaching
A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 7,5 ECTS credit corresponds to a workload of at least 200 hours.