AC5003 - Principles of Finance (2020/21)
|Module specification||Module approved to run in 2020/21|
|Module title||Principles of Finance|
|Module level||Intermediate (05)|
|Credit rating for module||30|
|School||Guildhall School of Business and Law|
|Total study hours||300|
|Running in 2020/21||No instances running in the year|
This module is designed to introduce students to the basic theory of finance and to apply the theory to the selection and management of financial investments. As a prerequisite, students will be introduced to quantitative techniques that are essential for studying finance.
Prior learning requirements
Professional Skills for Accountants
Legal and Economic Framework
This core module aims to enable students to:
1) reinforce and extend the knowledge and general understanding of the role and application of quantitative methods in accounting and finance contexts;
2) understand the basic theory of finance;
3) develop the skills of valuing investment instruments;
4) critically evaluate the conceptual frameworks for pricing securities;
5) undertake a written critical review of contemporary theories in finance.
The module also aims to help students in the development of the following skills:
. academic writing;
. analysis of economic financial data;
. quantitative problem-solving and decision-making;
. self assessment and reflection.
Correlation and simple linear regression with forecasting
Confidence intervals and hypothesis testing
Expected values and variances with applications to portfolio analysis
Basic calculus: differentiation and integration with applications
Finding and classifying turning points
An introduction to partial differentiation
Discrete compounding – present and future values
Logarithmic and exponential functions and their use in continuous compounding and applications in calculus
Matrix algebra operations: addition, subtraction and multiplication
Principles of Finance
The role, organisation and operation of financial markets; the economic function of financial markets; financial innovation
Fixed income securities: treasury and corporate bonds; bond pricing; duration; term structure of interest rate
The equity market: primary and secondary issues; basic share pricing models
Utility theory and risk aversion
Portfolio theory: risk and return; Markowitz’ portfolio theory
Asset pricing models: the capital asset pricing model (CAPM) and the arbitrage pricing theory (APT)
The efficient markets hypothesis (EMH)
Foreign exchange: spots and forwards markets
Parity conditions in foreign exchange markets
Learning and teaching
Teaching will take the form of a 2-hour lecture and a 1-hour seminar programme.
The lecture will be used to introduce new topics and themes in quantitative methods.
The seminars will be computer and class based and will require students to practise what has been learned in the lectures.
Principles of Finance
The lecture will be used to introduce basic finance concepts and techniques.
The seminar programme will concentrate on problem solving exercises and interpretive skills. Questions will be pre-distributed to allow students to attempt answers in advance of the seminar.
On successful completion of this module, students will be able to:
1) apply a variety of techniques in quantitative analysis to areas of accounting and finance;
2) understand the assumptions and limitations of the techniques that are employed;
3) explain the institutional arrangements relating to the issuance and trading of various capital market securities;
4) evaluate and apply the various theoretical models for determining the fair value of different types of securities;
5) advise on how to construct and manage portfolios for institutional and individual investors;
Formal Assessment will comprise of in-class test (20%), individual coursework (20%) and written examination (60%).
The in-class test will require a demonstration of knowledge and the application of quantitative methods learned.
The individual coursework will require an independent review of research literature in the form of an essay.
The written examination will be a 3-hour closed book assessment. The examination questions will have a focus on a specific section of the syllabus but may cover more than one topic.
The finance exam paper, by its very nature, consists predominantly of numerical questions which often require lengthy calculations. The duration of three hours for the examination is, therefore, justified in attempting to minimise students’ anxiety about time constraint and, thereby, enhance their chances of successfully completing the assessment.
Oakshott L, Essential Quantitative Methods for Business, Management and Finance , 5th edition, 2012, published by Palgrave Macmillan
Swift L and Piff S, Quantitative Methods for Business, Management and Finance , 3rd edition, 2010, published by Palgrave Macmillan
Principles of Finance
Essential Reading: One of the following:
Pilbeam K, Finance and Financial Markets, 3rd edition, 2010, published by Palgrave Macmillan
Levy H, Fundamentals of Investments, 2nd edition, 2002, published by Pearson Education
Rutterford J, Introduction to Stock Exchange Investment, 3rd edition, 2007, published by Palgrave-Macmillan
Sharpe W, Alexander G and Bailey J, Investments , 6th edition, 1999, published by Prentice Hall
Haugen R, Modern Investment Theory, 5th edition, 2001), published by Prentice Hall
Elton, E J, Gruber M, Brown S J and Goetzmann W N, Modern Portfolio Theory and Investment Analysis, 8th edition, 2008, published by John Wiley
Bailey R, The Economics of Financial Markets, 1st edition, 2005, published by Cambridge University Press