Foundations of Finance
Financial Markets and Investments


Downloadable Materials The Quiz Page Portfolio Assignment Benchmark Portfolio Giddy's Resource Page

Fall 2001
Executive MBA Program

Prof. Ian Giddy
Office: Stern 9-197. Tel 212-998-0426; Fax 212-995-4233
E-mail: ian.giddy@nyu.edu Web: http://giddy.org
Course Web site: http://www.stern.nyu.edu/~igiddy/investments.htm
Course assistant: Martijn Cremers, tel 212-998-0326 email kcremers@stern.nyu.edu


Goals
Students taking this course should expect to learn the nature and workings of financial markets and their use by corporations, investors and others.They will acquire some skills in modern valuation techniques, including the pricing of fixed-income securities, equities, foreign exchange and derivatives. They will learn about the principles of finance, including arbitrage, market efficiency, asset pricing models and portfolio theory. From the point of view of investors, individual as well as institutional, we will consider the principles of security valuation, portfolio selection and management, and risk control. Finally, the course will look at how banks and other financial institutions make money by bringing issuers and investors together.

Instructor
Prof. Ian Giddy is a graduate of the University of Michigan (MBA 1972, PhD 1974) and the University of the Witwatersrand (BSc 1970). He has taught finance at NYU, Columbia, Wharton, Chicago and abroad for the past twenty-five years. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. He is the author or co-author of numerous articles and books, including The Handbook of International Finance, The International Money Market, Cases in International Finance, Global Financial Markets, Asset Securitization in Asia and The Hudson River Watertrail Guide.

Pedagogy
The course employs cases and problems as well as classroom lectures and discussions, and a portfolio management simulation to offer a hands-on learning experience. We will make use of international as well as domestic examples. Each student will be expected to prepare thoroughly and to participate actively in class discussion. There will be three quizzes and a final exam.

The Course on the Internet
We will make use of the Internet for resource material and communication. Indeed this course outline itself will change: the definitive version is the Web site at http://www.stern.nyu.edu/~igiddy/investments.htm. Lecture materials, as available, can be downloaded from the Web. (You will need the Acrobat reader, available free from Adobe's Web Site http://www.adobe.com.)

Textbooks
Bodie, Kane and Marcus, Essentials of Investments, 5th ed., Irwin, 2002.
Ross, Westerfield and Jordan, Fundamentals of Corporate Finance, 4th ed., Irwin, 1998, Ch 5.
Additional readings will be made available in a readings package or for download from the "Course Materials" Web site, http://www.stern.nyu.edu/~igiddy/invmat.htm.

Students should have read the assignments before coming to class. Material covered in the assigned textbook readings will generally not be repeated in class. Rather, class time will be devoted to lecture and case discussion, applying the material covered in the readings.

Exams
The final examination will take place on the last day of class. See the schedule for quiz dates.

Problem Sets
A number of self-test problem sets, and three timed quizzes, based on the end-of-chapter questions, will be made available on the World Wide Web at The Quiz Site. Your ID will be FirstInitial+Lastname--for example, David Bowie becomes dbowie (I haven't figured out what to do about Madonna). Your password will be given out in class, or email the course assistant listed above.

Portfolio Management Game
Each student will manage a hypothetical portfolio of bonds and/or equities during the course. Broad selections must be made by the second class and given (or emailed) to the instructor. The goal will be to beat a passive $500,000 portfolio of 40% bonds, 50% equities, and 10% cash. Students will apply the concepts learned in the course to select which bonds and stocks to buy and which to sell, and to evaluate the relative performance of the portfolio. Students will be given materials to sign up for StockTrak to manage their portfolios. For more detail see the Rules of the Game.

Calculators, Computers and Software
You will need a calculator that has net present value, internal rate of return, yield to maturity, natural logarithm and exponential functions. You will need a computer, or access to one, that is connected to the Internet via Netscape ot Internet Explorer, and an email address. AOL is acceptable but not recommended. This site will be supplemented with links to Web-based software to assist in the valuation of bonds and equities.

Grading
The course grade will be determined as follows: Online Problem Sets 10%, Online Quizzes 25%, Portfolio Assignment 15%, Final Examination 50%.

These are the suggested grading standards for Stern School of Business Department of Finance Core Type Courses (B09.2316, B40.2302, C15.0001, C15.0025):
 
A 10%
A- 10-15%
B+ 10%
B, B- 50-60%
C+,C,C-,D,F 10-15%

Tutor
Limited tutorial assistance will be provided by a tutor. He will hold tutorial sessions on selected dates.

Additional Resources
The following books may be useful to those wishing to learn more about the fixed-income and equity markets:

Frank J. Fabozzi, Bond Markets, Analysis and Strategies, (Prentice-Hall). For short term fixed income securities, get Instruments of the Money Market, published by the Federal Reserve Bank of Richmond; or Dufey and Giddy, The International Money Market (Prentice-Hall, 1994). For equity valuation, try Aswath Damororan, Damodoran on Valuation. See also Bodie, Kane and Marcus, Appendix B.

The Wall Street Journal and the London Financial Times provide the most comprehensive daily coverage of financial and economic news. The most insightful economic commentary may be found in the weekly, The Economist. See also breakingnews.com.

Try the following Web sites:


 Course Outline

Financial Markets and Investments 


Dates Topics Readings
Sep 28 Fri am The financial markets; interest rates and the economy; international finance BKM Ch 2,3
Oct 6 Sat am Time value of money; applications to investment decisions, lease-versus-buy, etc  RWJ Ch 5
Oct 12 Fri am 3 The money and bond markets; measuring bond yields and risk BKM Ch 4,10
Oct  14-15 Real Quiz # 1
Oct 20 Sat am Risk, return and diversification; international diversification
Portfolio report #1 due
BKM Ch 6, 20
Oct 26 Fri pm Risk in the context of bond and equity portfolios 
Valuation and capital asset pricing
BKM Ch 7,8,11
Nov 3 Sat pm Equity valuation: theory and techniques
Portfolio report #2 due
BKM Ch 13,14
Nov 9 Fri pm 7 Equity valuation: applications Case study
Real Quiz # 2 (Risk to valuation)
Nov 17 Sat pm 8 Cash, futures, FRAs and swaps  BKM Ch 18
Dec 8 Sat am 9 Options and Option-Linked Instruments  BKM Ch 16,17
Real Quiz # 3 (Derivatives)
Dec 14 Fri am 10 Portfolio Performance and Strategies
Portfolio report #3 due 
BKM Ch 19
  Final Exam


Go to Giddy's Web Portal Contact Ian Giddy at ian.giddy@nyu.edu