Finance 1

Learning goals

The course title OFIN stands for „Orientation into Finance“. It shall introduce students into the field of finance and into the concepts and methods used in finance. Our topics will be (among others):

  • Making investment decisions with the net present value rule
  • The valuation of bonds and stocks
  • The relationship between risk and return
  • Introduction into options markets
  • The capital structure decisions of corporations
  • Management compensation and the alignment of interests between shareholders and managers

Throughout this course, emphasis will be placed more on intuition and the understanding of the key relationships than on formal rigor. All students are expected to participate actively inside and outside the classroom. All students are invited to question all issues presented and to contribute own insights.

Literature

Brealey, R.A.; S. Myers; F. Allen: Principles of Corporate Finance, 9. Aufl., McGraw-Hill, 2008.

We will only cover parts of the book in our course. It is not necessary to use the latest edition since older versions do not differ substantially on the topics that we will discuss in class. The (cheaper) international paperback version covers the same content and is a cheap alternative to the (hardcover) US-version. BMA is an internationally recognized standard reference that is used extensively among students throughout the whole world and also among practitioners in the field of finance. BMA discuss many topics from a „hands-on“ perspective where application rather than academic rigor is the focus of the presentation. It is also a standard reference in MBA courses and thus is a book that accompanies students from the undergraduate level to the master level and continues to be valuable during your professional career.

Course contents

  • Introduction
  • Present Value calculations
  • Valuation of Bonds and Stocks
  • Making investment decision: Present value rule and internal rate of return
  • Foundations of Statistics
  • Measuring Portfolio Risk
  • Risk and Return
  • Capital Budgeting and the Cost of Capital
  • Capital Budgeting and the Cost of Capital 2
  • The effect of leverage on risk and return
  • The capital structure decision
  • Introduction to Options
  • Basics of Option valuation
  • Agency Problems and Incentives
  • Test exam / discussion of test exam solution

The course consists of lectures and exercise sessions where we work jointly on problem sets, cases etc. The problem sets prepare students for the practical application of the concepts learned and also to the final exam. Students will be asked to prepare the problem sets before they are discussed in class. Students need to be prepared to present their suggested solution in front of the class.

Information

Lectures

Prof. Mark Wahrenburg

Exercises

Prof. Mark Wahrenburg