MW, 8:00am to 9:15am
Tisch T201
Final Exam: W 12/19, 8:009:50am
Schedule exceptions
Class will not meet on: M 10/15
The course is a rigorous, quantitative introduction to financial market structure and financial asset valuation. The main topics of the course are arbitrage, portfolio selection, equilibrium asset pricing (CAPM), fixed income securities, and derivative pricing. There is a short section on project valuation.
You are expected to understand valuation formulas and be able to apply them to new problems. The appropriate tools necessary for solving these problems will be developed at each stage and practiced in the homework assignments. The models we will cover have immediate applications and implications for realworld financial decisions.
Class 
Date 
Topic 
Description 
Required reading 
Suggested reading 
Homework 
1 
Sep 5 
Financial Instruments 
Course overview; Financial instruments 
Syllabus, BKM: 1.14 
BKM: 1.57, 2 

2 
Sep 10 
Financial Markets 
Financial Markets 
BKM: 3.13, 3.5, 3.7 
BKM: 3.4, 3.6, 3.8 

3 
Sep 12 
Performance of Securities 
Present value, future value, annuities, perpetuities 
RWJ: 4, 5.12; H: 12 

4 
Sep 17 
Performance of Securities 
Compounding and measuring returns 
RWJ: 5.34; BKM 5.12, 5.4; H: 35 
BKM: 5.3 

5 
Sep 19 
Portfolio theory 
Portfolio choice and portfolio returns; Efficient portfolios with two risky securities 
H: 69; BKM: 5.5, 6.12 

6 
Sep 24 
Portfolio theory 
Efficient portfolios with two risky securities; Optimal portfolios and investor preferences 
BKM: 5.2, 6.12; H: 9 
HWK 1 due in class 

7 
Sep 26 
Portfolio theory 
Efficient and optimal portfolios with a riskless asset 
BKM: 5.56, 6.34 

8 
Oct 1 
Portfolio theory 
Efficient and optimal portfolios with multiple risky assets; Introduction to the Capital Asset Pricing Model 
BKM: 6.45, 7.1; H: 1011 
BKM: 6.6 

9 
Oct 3 
The CAPM 
The Capital Asset Pricing Model 
BKM: 7.12; H: 12 

10 
Oct 8 
The CAPM 
Applications of the CAPM 
BKM: 7.4; H: 1314 
BKM: 7.3 

11 
Oct 10 
The CAPM 
Applications of the CAPM 
BKM: 7.5; H: 1314 
HWK 2 due in class 

12 
Oct 17 
Beyond the CAPM 
Beyond the CAPM; Market Efficiency 
BKM: 8 
BKM: 9 

13 
Oct 22 
Review 
Midterm review 

14 
Oct 24 
Midterm 
Midterm exam 

15  Oct 29  Equity Valuation 
Dividend discount models and valuation ratios 
BKM: 13.14; H: 1617 
BKM: 13.56 

16  Oct 31  Equity Valuation 
Dividend discount models and valuation ratios 
BKM: 13.14; H: 1617 
BKM: 13.56 

17 
Nov 5 
Arbitrage 
Arbitrage and the Law of One Price; Midterm evaluation 
H: 15 

18 
Nov 7 
Fixed Income Securities 
Bond prices and yields 
BKM: 10.14, H: 1819 
BKM: 10.5 

19 
Nov 12 
Fixed Income Securities 
Bond returns, forward rates, and the yield curve 
BKM: 10.6; H: 2022 

20 
Nov 14 
Fixed Income Securities 
The yield curve; Duration 
BKM: 11.13; H: 2324 
BKM: 11.4 

21 
Nov 19 
Fixed Income Securities 
Duration and immunization 
BKM: 11.13; H: 2324 
BKM: 11.4 

22 
Nov 21 
Options 
Option basics and strategies 
BKM: 15.12; H: 2526 
HWK 3 due in class 

23 
Nov 26 
Options 
Option strategies and arbitrage bounds 
BKM: 15.2, 16.1; H: 2627 
BKM: 15.34 

24 
Nov 28 
Options 
The BlackScholesMerton option pricing formula 
BKM: 16.24 
BKM: 16.5 

25 
Dec 3 
Options and futures 
Futures 
BKM: 17.1, 17.35; H: 28 
BKM: 17.2 

26 
Dec 5 
Futures 
Futures 
BKM: 17.56 
HWK 4 due in class 

27 
Dec 10 
TBA 
TBA 

29  Dec 12  Review  Final review  
Dec 19 
Final exam 
Final exam: 8:00am9:50am 
Readings
The main class material is in the course pack that I will hand out in the first class. It contains all PowerPoint slides that I use in class, handouts with important material covered in class, problem sets, and practice exam questions. Be sure to take notes during class; space is available next to the slides and on the left page. The handouts at the end of the course pack are there to alleviate the amount of writing you need to do.
We will mainly use [1], abbreviated BKM below. If you have an earlier edition of BKM (seventh or sixth), you are fine. There are only minor changes between recent editions. However, page and chapter numbers may vary. If you use an older edition, it is your responsibility to find out the differences with the latest edition. The solution manual [2] will come in handy when doing practice problems. We will use book [3], abbreviated RWJ, only in classes 3 and 4, and we will only use chapters 5 and 6. These two chapters are included in the course material packet available from the NYU bookstore. If you did not buy your course material through the bookstore, you can purchase [3] separately on the publisher's web site (Go to https://create.mcgrawhill.com/shop/#/catalog/details/?isbn=9780390169501. The booklet can be found under Prof. Stijn van Nieuwerburgh's name. Item [3]: ISBN: 9780390169501, price: $14.63.)
The textbooks are your source to review the material. BKM is often very good and tightly linked to what we will cover, but at other times the link is weaker. That said, it is currently the best book on the market for our purposes, and you will likely find it useful to prepare before class and to go over the material after class. While it is possible to succeed in this class without relying on the textbooks, I recommend purchasing them.
Staying UptoDate
The class web site on Blackboard contains links to recent articles in the financial press that complement the lectures. You are encouraged to follow financial
and macroeconomic news in the Financial Times, Wall Street Journal, or The Economist. If you encounter an interesting article that you would like to share with the class, send me an email and I will post it on the class web site. This section of the Blackboard site is regularly updated during the semester.
Calculator and Excel
You need a calculator for this class and I ask that you bring it to every class. It is a distinct advantage to have a financial calculator, but not an absolute requirement. If you plan to take other finance classes, you will get good use out of a financial calculator. Standard financial calculators include the HP 12C, the HP 10BII and the TI BAII Plus. You are expected to learn how to operate the calculator on your own. However, you can get help by attending the TA's review session
(after class 2) or his office hours. I have also included some useful slides in the course pack on how to work with the calculator.
Every student of Stern is expected to be comfortable with EXCEL tools. In particular, any Finance Area major is expected to have knowledge of these tools that extends beyond familiarity to an individual awareness of the uses and limitations of this technology.
Communication
The class web site is on Blackboard at http://classes.nyu.edu/. This is the central location where all teaching materials are posted. TA office hours and class announcements will be posted here. Problem sets are posted there as well. Solutions to the problem set will be posted no later than one week after the due date; they will not be distributed in paper form in class.
The class web site also contains the concept questions (see below), suggested problems, and some financerelated links and articles. Finally, there is a discussion board where the TA and I will participate on a regular basis to answer your questions. You are encouraged to answer each others' questions. If you have a question, first turn to the discussion board; chances are the question has been asked and answered there already.
Exams
The midterm and final exams test your understanding of the key concepts in the class. They do not test your ability to memorize or to use your calculator. Rather, they probe your deeper understanding of the material. As a result, they may be more challenging than the exams you are used to. To prepare for these exams, you should review the slides together with your own class notes, the handouts in the course pack, the concept questions, the required readings, the problem sets, the sample exams in the course pack, and preferably the suggested problem sets and suggested readings. The final exam is cumulative. You will be allowed one doublesided page of notes at the midterm exam and two doublesided pages of notes at the final exam. The sheets must be no larger than 8.5 inches by 11 inches. There are no restrictions on the content of the formula sheets, except that you are not allowed to reprint my Powerpoint slides verbatim. You will be asked to turn in these formula sheets after the midterm and final exams, but you will be able to recover the midterm sheet in the week after the midterm.
You are not allowed to take the exam questions home, and no written answers will be provided. There will be a postmidterm discussion. Once graded, you are allowed to come visit your midterm in my office, during office hours, or by appointment. The same rules apply to the final. If you must miss an exam, you will be required to make it up after the semester is over. No laptops or PDAs are allowed on the exam.
Due to University regulations as confirmed through the Dean's office, students must take the final examination with their assigned section. Unfortunately, the Professor has no discretion on this matter.
Concept Questions
After every class, concept questions are posted on Blackboard under Course Documents. The concept questions test your understanding of the key ideas covered in class on that day. There are typically five multiple choice questions per test. After you have reviewed the material from class, it should take you no more than 10 minutes to complete the concept questions.
Every concept test is available for ten days, starting at the end of class. When you submit your answers, you will see a screen with your score and the correct answers. I encourage you to print or save the answers as this is the only time you will see them. I will repost the concept questions as the midterm and final exams approach, but I will not make the answers available.
The concept questions are good preparation for the exam and a useful tool for keeping up with the material. While not formally part of your grade, I strongly encourage you to complete them.
There will be 4 problem sets over the course of the semester. Each problem set contains 1 Excel question, emphasizing a practical implementation of a concept from class. The problem sets are graded on a 5point scale. Late problem sets are not accepted. You are encouraged to work in groups on the problems, but you must hand in your own copy and you are asked to acknowledge any help you received on the front page of your submission. The homework questions are in the spirit of the exam questions, but slightly easier. They are meant to help you begin to apply the tools developed in class.
Suggested Problems
You can find suggested problems on Blackboard under Assignments. These questions will give you extra practice over and above the homework. You do not have to turn them in, and there is no credit for them. You can look up solutions in your solution manual [2]. The solutions to the questions in the RWJ booklet are available on the class website. Practice makes perfect: You should take the suggested problems seriously.
Study Groups
I highly recommend that you regularly review the class material in your study group. Do not wait until exam time to meet with your group. By then it will be too
late.
Guidelines for Group Projects
Business activities involve group effort. Consequently, learning how to work effectively in a group is a critical part of your business education.
Every member is expected to carry an equal share of the group’s workload. As such, it is in your interest to be involved in all aspects of the project. Even if you divide the work rather than work on each piece together, you are still responsible for each part. The group project will be graded as a whole: its different components will not be graded separately. Your exams may contain questions that are based on aspects of your group projects.
It is recommended that each group establish ground rules early in the process to facilitate your joint work including a problemsolving process for handling conflicts. In the infrequent case where you believe that a group member is not carrying out his or her fair share of work, you are urged not to permit problems to develop to a point where they become serious. If you cannot resolve conflicts internally after your best efforts, they should be brought to my attention and I will work with you to find a resolution.
You will be asked to complete a peer evaluation form to evaluate the contribution of each of your group members (including your own contribution) at the conclusion of each project. If there is consensus that a group member did not contribute a fair share of work to the project, I will consider this feedback during grading.
Grades will be based on the final exam (45 percent), the midterm exam (30 percent), problem sets (20 percent), and class participation (5 percent). Class participation is strongly encouraged.
At Stern, we want to ensure fair and consistent grading across core courses. As such, grades for this course will be distributed following the Stern Grading guidelines for Core Courses at the Undergraduate College.
The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges.
If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, you may submit a request to have the grade reevaluated. You must submit such a request to me in writing within seven days of receiving the grade, including a brief written statement of why you believe that a grading error has been made.
Attendance
Participation
Inclass contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:
Assignments
Classroom Norms
General Behavior
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior. Students who fail to do so may be asked to leave the classroom.
Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission.
Course Evaluations
Course evaluations are important to us and to students who come after you. Please complete them thoughtfully.
Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:
The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:
Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505
To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin. Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications. Additionally, your document will become part of the Turnitin database.
Your class may be recorded for educational purposes
If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 9984980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend. If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.
Students must be comfortable with statistics, linear algebra, calculus, and microeconomics. Students are strongly encouraged to study the statistics review handout (H0), located at the end of the course pack.