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Created 7/1/1996
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http://www.j-bradford-delong.net/Intro_Finance/BAonethirty.html
 
Fall 1996; 11-12:30; Cheit 230
Sections Monday 2-3:30, 3:30-5 Cheit 125

December 13 Final Exam (Friday, 5-8 PM; Haas F295)
 

Brad DeLong

Associate Professor of Economics 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone
(510) 642-6615 fax
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/


Brad DeLong's office hours: Tuesday 9:30-10:45 Evans 601, or by appointment: for appointments send e-mail to delong@econ.berkeley.edu

A link to Diego Garcia's home page.

A link to Jeff Moroch's home page.


My (Personal) Lecture Notes

Not guaranteed to be of much use

Brealey and Myers, chapter 2: Present Value (August 29, 1996)

Brealey and Myers, chapter 4: Valueing Common Stocks (September 5, 1996)

Brealey and Myers, chapter 5: Why NPV Is Good (September 10, 1996)

Brealey and Myers, chapter 6: Making Better Investment Decisions with NPV (September 12, 1996)

Brealey and Myers, chapter 7: Introduction to Risk and Return (September 17, 1996)

Brealey and Myers, chapter 8: Introduction to Portfolio Theory (September 19, 1996)

Brealey and Myers, chapter 8: Derivation of the Variance of a Diversified Portfolio (September 19, 1996)

Brealey and Myers, chapter 8: Introduction to Portfolio Theory II (September 24, 1996)

Brealey and Myers, chapter 9: Using the CAPM (September 26, 1996)

Brealey and Myers, chapter 10: Sensitivity Analysis (October 8, 1996)

Brealey and Myers, chapter 11: Where Present Values Come From (October 10, 1996)

Brealey and Myers, chapter 12: Capital Budgeting (October 17, 1996)

Brealey and Myers, chapter 13: Six Lessons of Market Efficiency (October 22, 1996)

Brealey and Myers, chapter 14: Overview of Corporate Financing (October 24, 1996)

Brealey and Myers, chapter 15: Issuing Securities (October 29, 1996)

Brealey and Myers, chapter 16: Dividend Policy (October 31, 1996)

Brealey and Myers, chapters 17 and 18: Capital Structure (November 7, 1996)

Brealey and Myers, chapters 19 and 20: Options I (November 19, 1996)

Brealey and Myers, chapter 21: Options II (November 21, 1996)

Brealey and Myers, chapter 22: Warrants and Convertibles (November 26, 1996)

Brealey and Myers, Summary (December 3, 1996)


Problem Sets

Problem Set # 1; due before section on Monday, September 16, 1996

Problem Set #2; given out in lecture on Tuesday, September 17, 1996; due before section on Monday, September 23, 1996.

Problem Set #3; given out in lecture on Tuesday, September 24, 1996; due before section on Monday, September 30, 1996.

Practice Midterm

Answers to Midterm #1

Problem Set #4; given out in lecture on Thursday, October 17, 1996; due before section on Monday, October 28, 1996.

Problem Set #5; to be given out in lecture on Thursday, October 24, 1996; due before section on Monday, November 4, 1996.

Problem Set #6; to be given out in lecture on Thursday, October 31, 1996; due before section on Monday, November 11, 1996.

Practice Midterm Two

Midterm Two Answers

Problem Set #7; to be given out in lecture on Thursday, November 21; due before section on Monday, December 3, 1996.

Practice Final and Answers


Syllabus

A. Present Value

August 27 Introduction (Brealey and Myers, chapter 1)

August 29 Present Value (Brealey and Myers, chapter 2)

September 3 Calculating Present Values (Brealey and Myers, chapter 3)

September 5 Valuing Common Stocks (Brealey and Myers, chapter 4; Capital Ideas, introduction and chapter 1; Random Walk, chapters 1, 2, 3, and 4)

September 10 Why Present Value Is Good (Brealey and Myers, chapter 5)

September 12 Making Investment Decisions Using Net Present Value (Brealey and Myers, chapter 6)



B. Risk, Return, Beta, and the Capital Asset Pricing Model

September 17 Introduction to Risk and Return (Brealey and Myers, chapter 7; Capital Ideas, chapters 2, 3, and 4)

September 19 Introduction to Portfolio Theory (Brealey and Myers, chapter 8, sections 8-1 and 8-2; Random Walk, chapter 9)

September 24 Betas (Brealey and Myers, chapter 8, sections 8-3, 8-4, 8-5; Capital Ideas, chapter 10; Random Walk, chapter 10)

September 26 Capital Budgeting and Risk (Brealey and Myers, chapter 9)



October 1 In-Class Review

October 3 First Midterm Exam



C. What Is Happening Inside the Firm?

October 8 Sensitivity Analysis and Decision Trees (Brealey and Myers, chapter 10)

October 10 Where Present Values Come From (Brealey and Myers, chapter 11)

October 17 Capital Budgeting (Brealey and Myers, chapter 12)



D. Market Efficiency and Its Implications

October 22 Lessons of Market Efficiency (Brealey and Myers, chapter 13; Capital Ideas, chapters 5, 6, 7, and 8; Random Walk, chapters 5, 6, 7, and 8)

October 24 Overview of Corporate Financing (Brealey and Myers, chapter 14)

October 29 Issuing Securities (Brealey and Myers, chapter 15)

October 31 Why Do Dividends Exist? (Brealey and Myers, chapter 16)

November 5 Debt Policy: Modigliani-Miller (Brealey and Myers, chapter 17; Capital Ideas, chapter 9)

November 7 How Much Should a Firm Borrow? (Brealey and Myers, chapter 18)



November 12 In-Class Review

November 14 Second Midterm Exam



November 19 The Interaction of Investment and Financing (Brealey and Myers, chapter 19)

E. Options Pricing and Other Topics

November 21 The Value of Options (Brealey and Myers, chapter 20; Capital Ideas, chapter 11; Random Walk, chapter 11)

November 26 Applying Options-Pricing Theory (Brealey and Myers, chapters 21 and 22); and Debt and the Term Structure (Brealey and Myers, chapter 23)



December 3 Review and Forecast (Brealey and Myers, chapter 35)

December 5 No Class

December 10 Final Review (11-12:30 Haas C230)

December 13 Final Exam (Friday, 5-8 PM; Haas F295)


Books

 

Required:

Brealey and Myers, Principles of Corporate Finance

Spiegel, Lecture Notes to Accompany Principles of Corporate Finance

 

Recommended:

Bernstein, Capital Ideas: The Improbable Origins of Modern Wall Street

Malkiel, A Random Walk Down Wall Street



Other Resources:

I am have put my own notes for lectures, problem sets and problem set answers, examples, and so forth up on the world wide web at:

http://www.j-bradford-delong.net/Intro_Finance/BAonethirty.html



Grading

Final exam (December 13): 35%
First midterm exam (October 3): 20%
Second midterm exam (November 14): 20%
Problem sets: 10%
In-class quizzes: 10%
Class participation: 5%

Those unable to make the final do not pass the course: if you know now that you will be unable to make the final, you do not belong here. Those who miss a midterm and have beforehand obtained permission will have their final grades calculated by proportionately upweighting all the other components of the grade. Problem sets will not be graded unless handed in on the due date.



Course Philosophy

This is a "tools" course.

I find the intellectual convolutions and details of modern finance fascinating. I spend a substantial amount of my time thinking about them. (See, for example, Quarterly Journal of Economics 108: 2; Journal of Portfolio Management 18:2; Journal of Economic History 52: 3;Journal of Business 64: 1; Journal of Political Economy 98: 4; Journal of Finance 45: 2; Journal of Finance 44: 3.)

But you are likely to find the intellectual convolutions and details less fascinating, and I will not spend much time on them. I do, however, strongly recommend doing the recommended reading. It provides a context that will make it much, much easier to recall and make sense of the tools and techniques that are to be taught in this course.

The major focus of the course will be to teach you two things: first, to do the calculations and perform the exercises that Brealey and Myers think you ought to be able to do and perform; second, to make you aware of what you are doing, and why you are doing it.



Adam Smith
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