NYU Stern School of Business

Undergraduate College


Spring 2013

Instructor Details

Gupta, Sudip


Tue-Thu 3:30-4:30 PM or by appointment

10-89 KMEC


Instructor:        Prof. Sudip Gupta

Office:                         10-89 KMEC

Office Hours:   Tue-Thu 3:30-4:30 PM or by appointment

Telephone:      212-998-0279

Email:              sgupta@stern.nyu.edu

Homepage:       Blackboard


TA:                  Kriti Jain (email : kriti.jain@nyu.edu)


Kriti Jain


12:15-2 PM

Ernst & Young Learning Centre


Course Meetings

TR, 2:00pm to 3:15pm

Tisch T-201

Final Exam:

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


Course Description and Learning Goals


This 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. 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. Every effort will be made to relate the course material to current financial news.


To take this course, students must be comfortable with statistics, linear algebra, calculus, and microeconomics. 


Course Pre-Requisites


To take this course, students must be comfortable with statistics, linear algebra, calculus, and microeconomics. 


Course Outline


The problem sets are listed in the session when they are due (see the last page for dates). BKM refers to Bodie, Kane and Marcus, Essentials of Investments, and RWJ refers to Ross, Westerfield, and Jordan, Essentials of Corporate Finance. Readings should be done prior to the class session in which the material is discussed.








Tue. Jan 29


Course overview



Thu, Jan 31

Financial Instruments & Markets

Skim: BKM 1-3


Tue, Feb 5

Time Value of Money

PV, FV, r

Annuities, perpetuities

Read: RWJ 4, 5.1-5.2


Thu Feb 7

Performance Measurement


Investment evaluation (NPV,IRR)

Read: RWJ 5.3, 8.1, 8.4

Handout: Continuous Compounding


Tue Feb 12

Portfolio Theory I

Statistics review

Risk and return

Read: BKM 5.1-5.3

Handout: Geometric vs. Arithmetic

Handout: Statistics Review

Problem Set 1


Thu, Feb. 14

Portfolio Theory II

Combining 2 risky assets

Portfolio terminology

Read: BKM 6.1-6.2


Tue, Feb. 19

Portfolio Theory III

Investor preferences

Efficient portfolios



Thu, Feb 21

Portfolio Theory IV

Adding a riskless asset

Read: BKM 5.4-5.6, 6.3


Tue, Feb. 26

Portfolio Theory V

Multiple risky assets

Read: BKM 6.4-6.6

Handout: 3 Special Portfolios

Problem Set 2


Thu, Feb 28


Equilibrium asset pricing

Read: BKM 7.1-7.2

Handout: The SML


Tue Mar. 5


Applying the CAPM

Read: BKM 7.3-7.5


Thu, Mar 7

Market Efficiency

Read: BKM 8

Problem Set 3


Tue, Mar. 12

Review/Problem Session



Thu, Mar. 14

Midterm Exam










Tue, Mar 26

Equity Valuation I

Valuation ratios

Dividend discount models

Read: BKM 13


Thu Mar. 28

Equity Valuation II




Tue Apr. 2


Arbitrage and the law of one price



Thu, Apr. 4

Fixed Income Securities I

Bond prices and yields

Read: BKM 2.1-2.2, 10.1-10.4

Problem Set 4


Tue, Apr. 9

Fixed Income Securities II

Forward rates and the yield curve

Read: BKM 10.6

Handout: Expectations Theory

Handout: Forward Rates


Thu Apr. 11

Fixed Income Securities III

Interest rate risk and default risk

Read: BKM 10.5, 11.1, 11.3


Tue, Apr. 16

Fixed Income Securities IV

Interest rate risk management and active management

Read: BKM 11.2, 11.4

Handout: Immunization


Thu Apr. 18

Options I

Options markets and option payoffs

Read: BKM 15

Problem Set 5


Tue Apr. 23

Options II

Option strategies and the determinants of option value

Read: BKM 16.1-16.2


Thu Apr. 25

Options III

Binomial and Black-Scholes option pricing

Read: BKM 16.3-16.5


Tue, Apr. 30


Forward and futures contracts

Read: BKM 17.1-17.5


Thu, May. 2


Read: BKM 17.6


Tue, May. 7

Investment Management

Mutual funds, hedge funds and performance evaluation

Skim: BKM 4, 18

Problem Set 6


Thu, May. 9

Review/Problem Session



Assignment Due Dates


Assignments (problem sets, exams) are due on the following dates. Problem sets are due before the end of the corresponding class session. Assignments that are late but within 24 hours of the deadline, will receive ½ credit. After 24 hours no assignments will be accepted (unless due to documented serious illness or family emergency). There will be no make-up exams. Any changes to this schedule will be announced in class and on Blackboard.




Due Date

Problem Set 1

Tue, Feb. 12

Problem Set 2

Tue., Feb 26

Problem Set 3

Tue., Mar. 12

Midterm Exam

Thu, Mar 14

Problem Set 4

Tue., Mar. 26

Problem Set 5

Tue., Ap. 9

Problem Set 6

Tue., Apr 23

Final Exam




Required Course Materials


The main textbook for the course is


            Zvi Bodie, Alex Kane, and Alan J. Marcus, Essentials of Investments,  McGraw-Hill Irwin, 2010.


The text comes with a solutions manual for the end-of-chapter problems. Further required material is in the custom published version of selected chapters from


Stephen A. Ross, Randolph W. Westerfield, and Bradford D. Jordan, Essentials of Corporate Finance, 6th Edition, McGraw-Hill Irwin, 2008.


The 3 chapters in this extract, along with material from the associated Student Problem Manual, are in a soft-bound book. All three books should come shrink-wrapped together in the bookstore.


There is an optional book


Craig W. Holden, Excel Modeling and Estimation in the Fundamentals of Investments, 3rd Edition, Pearson Prentice Hall, 2009.


that is useful for those with limited knowledge or experience with the Excel tools used in this course.


There will be lecture notes, handouts, and supplementary materials (e.g., sample Excel spreadsheets) for many classes. Lecture notes and handouts will be distributed at the beginning of class, and they will also be available on Blackboard, usually before the relevant class session. Extra copies of these materials will not be available in my office. If you miss or lose the handouts, you should print them out from Blackboard. The supplementary materials will also be available on Blackboard, as will links to other relevant information.


Finally, you need a calculator for this class. It is a distinct advantage to have a financial calculator, but not an absolute requirement. However, if you plan to take other finance classes, you will get good use out of a financial calculator.


Assessment Components


The final grade will be calculated as follows:


                                    Class participation                                 5%

                                    Problem sets                                        15%

                                    Midterm exam                                     35%

                                    Final exam                                           45%


At NYU Stern we seek to teach challenging courses that allow students to demonstrate differential mastery of the subject matter. Assigning grades that reward excellence and reflect differences in performance is important to ensuring the integrity of our curriculum. As such, following faculty guidelines, grades for this course will follow approximately the following distribution:


                                                A’s (A/A-)                               25-35%

                                                B’s (B+/B/B-)                           50-70%

                                                C’s and below                           5-15%


Note that while we use these ranges as a guide, the actual distribution for this course will depend upon how well the class actually performs in the course. 


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.



At NYU Stern we seek to teach challenging courses that allow students to demonstrate their mastery of the subject matter.  In general, students in undergraduate core courses can expect a grading distribution where: 

Note that while the School uses these ranges as a guide, the actual distribution for this course and your own grade will depend upon how well you actually perform in this course.



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.


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