BUS220 Finance and Investment

Basic financial mathematics. Net present value. Risk and return. Basic portfolio theory. Capital asset pricing method (CAPM). Pricing of stocks, bonds and options. Project analysis. Cost of capital. Financial structure and dividend policy. Ethical problems in finance.

Knowledge

• Understand the place of investment analysis business economics.
• Understand why we focus on cash flows and not results.
• Understand what cash flow means.
• Understand what is meant by the different discounting principles- Time value of money/financial mathematics.
• Understand what is meant by discount rate / capital cost.
• Understand the importance of, and the differences between, the different decision-making criteria for an investment. including; Net present value, Internal rate of return, Payback, etc.
• Understand what is meant by term structure of interest rates and forward rates.
• Understand what lies in the terms total risk, relevant risk and irrelevant risk.
• Understand the content of portfolio theory and its significance for what we call gains of diversification.
• Understand what is meant by Beta as well as being able to interpret the size of it.
• Understand the Capital Asset Pricing Model (CAPM) and how it is derived.
• Understand what is meant by the weighted average cost of capital (WACC) and when it will be used.
• Understand the concept of market efficiency.
• Be able to make investment calculations and decisions for projects
• Understand financing choices
• Understand options, futures / forwards, put-call parity, international interest rate parities

Skills

• On completion of the course students should be able to:
• Budget cash flows, according to the equity method and the total capital method.
• Apply the different discounting rules using both calculator and spreadsheet.
• Apply the different decision-making criteria to both equities and bonds.
• Apply portfolio theory to various investment alternatives.
• Calculate Beta values.
• Derive the Capital Asset Pricing Model
• Apply the Capital Asset Pricing Model. *
• Calculate the weighted average cost of capital.
• Calculate the present value of investment projects and discuss risk in investment decisions
• Estimate option premiums

General competence

• As it will consistently be focused on the prerequisites of the different theories, students are expected to have a critical attitude towards the relevance of these. After completion of the course, students will have a good understanding of the practical relevance of the presented theory.