NYU Stern School of Business

Undergraduate College


Fall 2012

Instructor Details

Gupta, Sudip



Mon-Wed 3:30-4:30 PM or by appointment



Course Meetings

MW, 2:00pm to 3:15pm

Tisch T-200

Final Exam:

Schedule exceptions
    Class will not meet on:
    Class will meet on:


Course Description and Learning Goals

The course is a rigorous, quantitative introduction to fi nancial 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 small 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 real-world financial decisions.


Course Outline

Class 1: Financial Instruments (Wed 09/05)
Overview of class, Financial Instruments
RR: Syllabus, BKM 1.1-4
SR: BKM 1.5-7, 2

Class 2: Financial Markets (Mon 09/10)
Financial Markets
RR: BKM 3.1-3, 3.5, 3.7
SR: BKM 3.4, 3.6, 3.8

Class 3: Performance of Securities (Wed 09/12)
PV, FV, annuities, perpetuities
RR: RWJ 4, 5.1-2, H1-2

Class 4: Performance of Securities (Mon 09/17)
Compounding and Return measures
RR: RWJ 5.3-4, BKM 5.1-2,5.4, H3-5
SR: BKM 5.3

Class 5: Mathematics and Statistics - Review (Wed 09/19)
Basic statistics, series, optimization
RR: H0

Class 6: Portfolio Theory (Mon 09/24)
Positions and Portfolio Returns, Efficient Portfolios with Two Risky Securities
RR: H6-8, BKM 5.5, BKM 6.1-2, H9

Class 7: Portfolio Theory (Wed 09/26)
Efficient Portfolios with Two Risky Securities, Optimal Portfolios and Investor Preferences
RR: BKM 6.1-2, H9, BKM 5.2
Homework 1 is due in class.

Class 8: Portfolio Theory (Mon 10/01)
Efficient and Optimal Portfolios with Riskless Asset
RR: BKM 5.5-6, 6.3-4

Class 9: Portfolio Theory (Wed 10/03)
Efficient and Optimal Portfolios w/ Multiple Risky Assets, Introduction to Capital Asset
Pricing Model
RR: BKM 6.4-5, H10-11, BKM 7.1
SR: BKM 6.6

Class 10: Capital Asset Pricing Model (Wed 10/8)
The Capital Asset Pricing Model
RR: BKM 7.1-2, H12

Class 11: Capital Asset Pricing Model (Mon 10/10)
Applications of the CAPM
RR: BKM: 7.4, H13-14
SR: BKM 7.3

Class 12: Capital Asset Pricing Model (Wed 10/17)
Applications of the CAPM
RR: BKM: 7.5, H13-14
Homework 2 is due in class.

Class 13: Capital Asset Pricing Model and Beyond (Mon 10/22)
Applications of the CAPM

Class 14: Review (Wed 10/24)
Pre-midterm review

Class 15: Midterm (Mon 10/29)
Midterm exam.

Class 16: Arbitrage (Wed 10/31)
Arbitrage and the Law of One Price
RR: H15

Class 17: Equity Valuation (Mon 11/05)
Dividend Discount Models and Valuation Ratios, Midterm evaluation (20 mins)
RR: BKM 13.1-4, H16-17
SR: BKM 13.5-6

Class 18: Equity Valuation (Wed 11/07)
Dividend Discount Models and Valuation Ratios
RR: BKM 13.1-4, H16-17
SR: BKM 13.5-6

Class 19: Fixed Income Securities (Mon 11/12)
Bond Prices and Yields
RR: BKM 10.1-4, H18-19
SR: BKM 10.5

Class 20: Fixed Income Securities (Wed 11/14)
Bond returns, Forward Rates, and Yield Curve Theories
RR: BKM 10.6, H20-22

Class 21: Fixed Income Securities (Mon 11/19)
Yield Curve Theories and Duration
RR: BKM 11.1-3, H23-24
SR: BKM 11.4

Class 22: Fixed Income Securities (Wed 11/21)
Duration and Immunization
RR: BKM 11.1-3, H23-24
SR: BKM 11.4

Class 23: Options (Mon 11/26)
Options Basics and Strategies
RR: BKM 15.1-2, H25-26
Homework 3 is due in class.

Class 24: Options (Wed 11/28)
Options Strategies and Minimum Value
RR: BKM 15.2, 16.1, H26-27
SR: BKM 15.3-4

Class 25: Options (Mon 12/03)
Black-Scholes Option Pricing Formula
RR: BKM 16.2-4
SR: BKM 16.5

Class 26: Options and Futures (Wed 12/05)
RR: BKM 17.1, 17.3-5, H28
SR: BKM 17.2

Class 27: Futures (Mon 12/10)
RR: BKM 17.5-6
Homework 4 is due in class.

Class 28: Review (Wed 12/12)
Pre-fi nal review

Final Exam (TBA)


Required Course Materials

The textbooks for this class are:

  1. Essentials of Investments" by Zvi Bodie, Alex Kane, Alan J. Marcus, 8th edition.
  2. Solutions Manual for use with Essentials of Investments" by Zvi Bodie, Alex Kane, Alan J. Marcus, Alan Marcus, 8th edition
  3. Selected Materials from \Essentials of Corporate Finance" by Stephen A. Ross, Randolph W. Wester eld, Bradford D. Jordan, 8th edition

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 editions. Page and chapter numbers may vary though. If you use an older edition it is your responsibility to fi nd out the diff erences with the latest edition. Book [2] will come in handy to solve practice questions. We will only use chapters 5 and 6 from book [3], abbreviated RWJ. These two chapters come as a supplement in the class material packet if you purchased your class material through the bookstore. The supplement [3] will only be used in classes 3 and 4. If you did not buy [1] through the bookstore, you can purchase [3] separately on the publisher's web site (Go to https://ebooks.primisonline.com. Click on "Custom eBooks" and follow the links. The booklet can be found under "Professor Stijn van Nieuwerburgh"'s name. Item [3]: ISBN: 0-390-169501, Order: 97155267, price: $14.63.)

The main role of the textbooks is to serve as a source where you can review the material. BKM is at times very good and tightly linked to the material I cover, but the link to the material I cover in class is a bit weaker on some other topics. That being said, it is currently the best book on the market for our purposes, and you will need it to prepare before class and go over the material after class.

The main class material is the course pack which I will hand out in the first class. It is also available through the bookstore. It contains all powerpoint slides that I use in class, handouts with important material covered in class, problem sets, and practice exams. You will want 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.

Staying Up-to-Date

The class web site on Blackboard contains links to recent articles in the nancial 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. It is a distinct advantage to have a fi nancial calculator, but not an absolute requirement. If you plan to take other finance classes, you will get good use out of a fi nancial calculator. Standard fi nancial calculators include the HP 12C, the HP 10B-II and the TI BA-II Plus. You are expected to learn how to operate the calculator on your own. However, you can get help by attending the teaching assistants' review sections
(after class 2) or their office hours. Finally, I have 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 a knowledge of these tools that extends beyond familiarity to an individual awareness of the uses and limitations of this technology.


The class web site is on Blackboard at http://www.sternclasses.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 nance links and articles. Finally, there is a discussion board where the TAs and myself 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.


Assessment Components


The midterm and fi nal 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 (at the end of the course pack), the concept questions, the required readings, the problem sets, the sample exams (located in your course pack behind the homework), and preferably the suggested problem sets and suggested readings. The final exam is cumulative. You will be allowed one double-sided page of notes at the midterm exam and two double-sided pages of notes at the final exam. The sheets must be no larger than 8.5 inch by 11 inch. 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 exam, 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 post-midterm 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 fi nal. 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 confi rmed through the Dean's office, students must take the fi nal 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 main concepts
taught in the class of that day. Usually, there are between 3 and 10 multiple choice questions per test. After you have reviewed the material from class, it should take you no more than 10 minutes to complete these concept questions. Every concept test is available for ten days, starting from the time the class ends.

Participation in the concept questions counts towards your participation grade (it is half of your participation grade). However, I will not keep track of whether you answered the questions correctly or not. Basically, the concept questions are good preparation for the exam and a device that gives you an extra incentive
not to fall behind.

Problem Sets

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. The problem sets are graded on a 3 point scale. Late problem sets will not be 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 copy. The homework questions will be in the same spirit of the exam questions, but slightly easier.After all, they are your first encounter with the implementation of the material.


Suggested Problems

Suggested problems are posted on Blackboard under Assignments. These questions are intended you 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 (class 2) are included in your course pack. Practice makes perfect: You are strongly encouraged to take the suggested problems seriously.


Study Groups

It is highly recommended that you regularly review the class material in your study group. Don't wait until exam time to meet with your group. By then it's too


Group Projects

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 problem-solving 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 (15 percent) and class participation (10 percent). Class participation is strongly recommended as it will be accounted for in the determination of the final grade.

The participation grade consists of class participation (50 percent) and participation in the concept questions on Blackboard (50 percent). Inappropriate classroom behavior (such as coming late repeatedly, disrupting the class, etc.) will negatively a ffect your fi nal grade.

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 to it.

If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 7 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.


Professional Responsibilities For This Course




In-class 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:




Classroom Norms


Stern Policies

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.


Academic Integrity

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.


Recording of Classes

Your class may be recorded for educational purposes


Students with Disabilities

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, 998-4980, 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 review handout on statistics located at the end of the course pack.


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