BØ6-2004 Applied Finance

Contents and structure

Core subjects:

• Returns and risk assessments on different portfolios
• Systematic and unsystematic risk
• Market efficiency and market inefficiency
• Relevant risk og cost of capital
• Return on Equity and Return on Investment (Return on total Capital invested in the Project/firm)
• Debt ratio and systematic risk
• Debt ratio and the total value of the firm in Perfect Capital markets
• How a business tax and a combined tax levied on business and dividend affect the total value of the firm
• How to calcalute the value of a Call and a put option applying both the binomial option pricing model and the Black-Scholes-model

Learning Outcome

Knowledge

Having completed this course, the student should have knowledge about 

• Portfolios and risk
• the different aspects of relevant and irrelevant risk when assessing Returns on a potential investment
• debt ratio and the value of the firm in both Perfect and imperfect Capital markets
• how to price Call and put options. 

 

Skills

Having completed this course, the student should be able to  

• estimate expected Return on Portfolios and both systematic and total risk
• estimate required ROA and ROI on present firms and planned investments
• apply the Capital Asset Pricing Model (CAPM)
• Estimate the value of a Call and a put option applying both the binomial option pricing model and the Black-Scholes-model

 

Competence

Having completed this course, the student should   

• understand the concepts of systematic og unsystematic risk
• understand the concept of market efficiency and the different Levels of market inefficiency
• understand how and when to apply CAPM
• understand how the Debt ratio affects the firm's total value
• understand how to estimate the value of a Call and a put option applying both the binomial option pricing model and the Black-Scholes-model

Entry requirements

None

Recommended previous knowledge

Recommended prior knowledge: Investment and Finance (BØA204), Mathematics for Economists (BØA111) and Statistics for Economists (BØA115) or equivalent courses. 

Teaching methods

Lectures, including problem solving. . 

Compulsory learning activities

Up to 2 mandatory written assignments. Handed in individually or as part of a group. 

Assessment

Written exam. 4 hours. 

Grading assigned as letters 

Examination support material

Calculator and a handout containing formulas.

More about examination support material