Finance
Created 7/1/1996
Go to Brad De
Long's Home Page
Send e-mail
to Brad De Long | Return to Business
Administration 130 Home Page
Business Administration 130 Home Page
http://econ161.berkeley.edu/Intro_Finance/BAonethirty.html
Fall 1996; 11-12:30; Cheit 230
Sections Monday 2-3:30, 3:30-5 Cheit 125
Brad De Long
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://econ161.berkeley.edu/
Brad De Long'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://econ161.berkeley.edu/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.
Send e-mail to Brad De
Long
Return to Brad De Long's Home
Page
Return to Business Administration 130 Home
Page