# BØK 1121 Finance I

## BØK 1121 Finance I

This introductory focuses on acquiring basic skills in mathematical finance and analysis of net present value related to firms' real investments. Moving from an economic environment characterized by complete certainty with respect to the relevant decision variables, the analysis subsequently extends to incorporate uncertainty (risk) and how uncertainty affects the required rate of return on real-investment projects. Since the required rte of return emanates as an alternative cost of capital in well-functioning markets, the course also provides a brief introduction to capital market theory.

Upon completing the course, it is expected from students that they:

- Understand how financial mathematics (application of different discounting models) facilitates correct calculation (and estimation) of the time value of money.
- Understand how different models used to analyse profitability (net present value, internal rate of return, payback) facilitate estimation of the expected return on real investments.
- Understand how portfolio theory and diversification helps identify and distinguish, as well, betweeen relevant (systematic) and irrelevant (unsystematic) risk.
- Understand why the capital asset pricing model (CAPM) generates required rates of return that appropriately takes 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 the time value of money for a variety of applications.
- 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 profitability are based. Successful application requires comprehension of the models' limitations in practical use.

- Introduction: Brief overview of main topics and general role ans relevance in modern managerial economics.
- The basic tools of financial mathematics
- Models of profitability and use of decison criteria 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 15 sessions each lasting 3 lecture hours for a total of 45 lecture hours.

In order to accomodate an active and inspiring learning environment, two-way communication between students and the the lecturer is vitally important. It is expected from students that they participate during class by asking relevant questions..

Students are expected to attend seminar groups to ensure a smooth and continous learning process. During the semester, 10 seminars are offered with 10 home assignment problem sets covering the main topics of the course. The semainar are held immediately following the weekly classes. Steady work on the assignment problems facilitates an understanding and appreciation of financial decision analysis. The seminars are organized and conducted by the lecturer.

Excel software is demonstrated and used when working on financial mathematics problems and firms' multi-year capital budgeting analysis. Students are strongly encouraged to acquire skills in Excel, including simple coding in VBA (visual basic applications).

The course requires a normal work-effort of 12- 15 hours. As of the beginning of the semester, students are made aware of the required amount of work.

Higher Education Entrance Qualification

**Covid-19**

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.

**Teaching**

Information about what is taught on campus and other digital forms will be presented with the lecture plan before the start of the course each semester.

Basic-courses in mathematics I and managerial economics during Fall-semester of Year 1, and mathematics II, statistics, and microeconomics during the Spring-semester of Year 1.

Exam category | Weight | Invigilation | Duration | Support materials | Grouping | Comment exam |
---|---|---|---|---|---|---|

Exam category:Submission Form of assessment:Written submission Exam code:BØK11211 Grading scale:ECTS Grading rules:Internal and external examiner Resit:Examination every semester | 100 | Yes | 3 Hour(s) | - BI-approved exam calculator
- Simple calculator
- Bilingual dictionary
- Interest table
| Individual |

Activity | Duration | Comment |
---|---|---|

Teaching | 39 Hour(s) | 13 lectures of three hours duration. |

Feedback activities and counselling | 6 Hour(s) | 2 sessions of 3 hours (6 hours) come with a review of previous exam questions. |

Prepare for teaching | 25 Hour(s) | One and a half to two hours of preparation prioer to attending class. |

Seminar groups | 127 Hour(s) | Work on 10 weekly designated exercise sets and presence during the announced plenary sessions. Exercise sets are distributed prior to each lecture (class meet). |

Examination | 3 Hour(s) |

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.