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Syllabus for Financial Evaluation and Strategy

Scott Weisbenner, Professor of Finance and James F. Towey Faculty Fellow, University of Illinois
at Urbana-Champaign

Professional information and background

Coursera profile

Course Description
In this course, we will discuss fundamental principles of trading off risk and return, portfolio
optimization, and security pricing. We will study and use risk-return models such as the Captital
Asset Pricing Model (CAPM) and multi-factor models to evaluate the performance of various
securities and portfolios. We will also establish benchmarks or hurdle rates for securities and
firms. Building upon this framework, market efficiency and its implications for patterns in stock
returns and the asset-management industry will be discussed. Finally, the course will conclude by
connecting investment finance with corporate finance by examining firm valuation techniques
such as the use of market multiples and discounted cash flow analysis. This course is the first of
two on investments that I will be offering online.

Course Goals and Key Takeaways
The over-arching goals of this course are to build an understanding of the fundamentals of
investment finance and provide an ability to implement key asset-pricing models and firmvaluation techniques in real-world situations. Specifically, upon successful completion of this
course, you will be able to:

Know the historical returns of various asset classes in the U.S.

Form a portfolio of securities and calculate the expected return and standard deviation of
that portfolio.

Graph return-volatility tradeoffs and construct optimal/efficient portfolios.

Analyze whether it makes sense to hold gold as part of a diversified portfolio.

Analyze the benefit of adding international funds to a U.S.-centric portfolio.

and linear regression analysis).  Evaluate key return anomalies like the size and value investment strategies. Recommended Background You are strongly recommended to have knowledge of statistics (in particular an understanding of probability distributions.  Appreciate sensitivity of perpetuities to interest/discount rates and growth rates.  Analyze regressions of stock returns.  Understand what is meant by market efficiency. Understand the implications of the Separation Theorem of investments.  Understand market multiples and income approaches to valuing a firm and its stock.  Conduct specific examples of a market multiples valuation and a discounted cash flow valuation. as we will use Excel in the course to conduct regression analyses and optimize various portfolios subject to certain conditions. Course Materials The course is designed to be self-contained in the video lectures. correlations.  Understand what market efficiency implies for patterns in stock returns and for the assetmanagement industry.  Know the historical performance of the CAPM and how these tests were done.  Conduct perpetuity valuations.  Understand differences between the CAPM and 3-Factor Model. An ability to use Microsoft Excel is also strongly recommended.  Estimate and interpret the ALPHA (α) and BETA (β) of a security.  Appreciate the limits in long-term forecasting of discount rates and growth rates.  Understand and use the Capital Asset Pricing Module (CAPM).  Use and interpret 3-Factor Models. I do require (or at least strongly suggest!) two additional readings to supplement the course (they are available on JSTOR): .

Vol. Course Outline The course consists of four modules. p. The results and conclusions from various academic papers will be referenced throughout the course (with references provided for you to investigate these papers further if you wish). 18(3). French). Journal of Economic Perspectives. 2014. plus Course Introduction and Course Conclusion videos. Fama and Kenneth R. 3-24. and Alan J.S. 25-46. For each module. Vol. We will definitely be learning by doing in this course! Supplemental Textbook Coverage (NOT REQUIRED) As mentioned earlier. the course is designed to be self-contained in the video lectures and has only two additional required readings. McGraw-Hill Irwin.  Investments (by Zvi Bodie. The Ivo Welch textbook is available for free online. and Franklin Allen). 18(3).  Corporate Finance (by Ivo Welch). The textbooks listed below are NOT REQUIRED (because they cost money!). I will also provide you with several Excel spreadsheets that serve as the basis for in-lesson exercises and assignments. Perold). Module 1: Investments Toolkit and Portfolio Formation Lessons:  Investments Toolkit  Historical Returns in the U. 2014. 3rd edition. 10th edition. Stewart C. 2004. 2011. 2004. but are a source for further coverage of topics discussed in the video lessons if you are interested. McGraw-Hill Irwin. "The Capital Asset Pricing Model" (by André F. p.  Return and Risk: Intro to Portfolios  Portfolio Choice in General Settings . 10th edition. Alex Kane.Journal of Economic Perspectives.  "The Capital Asset Pricing Model: Theory and Evidence" (by Eugene F. I will indicate the corresponding coverage in these textbooks in the module's reading list.  Principles of Corporate Finance (by Richard A. Brealey. The first two textbooks listed below do not provide free access. Myers. but please note that all material on this website is copyrighted and access is only permitted and free to users who adhere to certain conditions (for details visit the web link below). Marcus).

p. 3-24. Description & Discussion of Assignment 1  Calculating Efficient Portfolios of Risky Assets  Description & Discussion of Assignment 2 Required Reading:  Read pages 3-15 of "The Capital Asset Pricing Model" (by André F. Module 3: Testing the CAPM. 2004. 18(3). Explaining. Vol. 18(3). Journal of Economic Perspectives. Module 2: Motivating. 3-24. Perold). p. Vol. 1927-2014  Description & Discussion of Assignment 3 Required Reading:  Read pages 15-24 of "The Capital Asset Pricing Model" (by André F. 2004. & Market Efficiency Lessons:  Testing the CAPM & Market Anomalies  Multi-Factor Models and Matching  Use Domestic or Global Factors?  Return-Risk Model Used by Chief Financial Officers (CFOs)  Market Efficiency . Journal of Economic Perspectives. & Implementing the Capital Asset Pricing Model (CAPM) Lessons:  Separation Theorem of Investments  Examples of Reducing Portfolio Risk  Capital Asset Pricing Model (CAPM)  Applications of CAPM  Evaluation of Small-Value Stock Investment Strategy. Perold). Multifactor Models.

2004. Please take advantage of this break to think about the material and formulate a response before advancing ahead in the video to hear my answer.Journal of Economic Perspectives. 18(3). These video lectures are the heart of the course. we will conduct several in-lesson exercises and statistical analyses using the Excel spreadsheets I have provided. I am a strong believer in learning by doing. 25-46. and Answer" in response to a question. French). I have recorded a series of videos for you to watch in each module for each lesson. You may stream these videos for playback within the browser by clicking on their titles. . Vol. Description & Discussion of Assignment 4 Required Reading:  "The Capital Asset Pricing Model: Theory and Evidence" (by Eugene F. Think. so we will be working together on several exercises throughout the course. Also. Fama and Kenneth R.  In-video questions and exercises. there will be several times when I ask you to "Pause. p. Module 4: Investment Finance and Corporate Finance: Firm Valuation Lessons:  Perpetuity Valuation with Simple Application to S&P 500  Valuation Primer: Market & Income Approaches  Caution in Projecting Firm Discount Rates  Caution in Projecting Firm Growth Rates  Discounted Cash Flow Valuation Example: Pension Plan Liabilities  Market Multiples Valuation Example: Google at Its Initial Public Offering (IPO)  Description of Assignment 5 & Valuation of Microsoft Required Reading:  None Elements of This Course The course is comprised of the following elements:  Lecture videos. Throughout the various videos in each module.

Please view my discussion of the assignment before reviewing the work of your peers. The Module Quiz is meant to test your knowledge of the basic concepts covered in that module. You will complete each assignment on your own.please see the help topics here. with the exception of Module 1. Just no commenting on my weight or choice of ties during the video lessons! How to Pass This Course and Qualify for a Course Certificate To qualify for a Course Certificate. You may attempt each Module Quiz multiple times if you do not score 80% or above on your first attempt. you can take each Module Quiz two times every four hours if need be (but hopefully this is not necessary!).  Discussion forums. . you will submit your assignment to be reviewed by two peers and you will be required to review the work of three peers. Indeed.  Quizzes.  Readings. only the Ivo Welch textbook provides free access subject to certain conditions). I have also provided. There are required readings for the first three modules. For the fifth and last assignment. you will submit your assignment to be reviewed by one peer and you will be required to review the work of at least two peers.  Review the assignments of at least two peers for each of the first four assignments and three peers for the fifth assignment. Many of these assignments will use Excel spreadsheets that I will provide to you. you may review my discussion of it. simply start verifying your coursework at the beginning of the course (with no upfront charges). but you are encouraged to do so. These assignments provide practice implementing concepts discussed during the video lessons.  Earn 80% or above on each of the first four assignments and earn 70% or above on the fifth assignment. You will need to score 80% or above on each Module Quiz to pass the course. and then submit it. Posting in the forums is optional. You must earn 80% of the points on each of the first four assignments and at least 70% of the points on the fifth assignment to pass the course. Assignments. Each module has a Module Quiz. For the first four assignments. After completing your assignment. There will be five assignments in the course (one for each module. which has two assignments). sources for further coverage of topics discussed in the video lessons if you are interested (but of the three finance textbooks. you can delay payment until you’re confident you’ll pass! Coursera Financial Aid is available to offset the registration cost for students with demonstrated economic needs. To pass this course and qualify for a Course Certificate you must:  Score 80% or above on each Module Quiz. and pay the $79 Course Certificate registration fee any time before you complete the course. in the reading list for each module. Thus. If you have questions about Course Certificates.

text and links on course pages. I sincerely appreciate your input about the course and ask that you have patience if any adjustments to the course need to be made. you are on your way toward completing this Specialization! This course will also be part of the iMBA program offered by the University of Illinois at Urbana-Champaign and is eligible to be taken for University of Illinois credit (subject to enrolling in the "high-engagement" version of this course). However. teaching a massive open online course (MOOC) is a new experience for me (at least as of the summer/fall of 2015).Besides being a stand-alone course. . By earning a Course Certificate in this course. you can also report your problem to the Coursera staff by clicking on the Contact Us! link available on each topic's page within the Learner Help Center. difficulty submitting assignments. I am not able to answer emails sent directly to my account. Rather. If you cannot find an answer in the documentation. or problems with video playback. Note: If you choose not to verify your work. For example. Therefore.  Use the Content Issues forum to report errors in lecture video content. University of Illinois staff and community TAs will monitor this forum and respond to issues. this syllabus is subject to change as I learn more about teaching in this exciting and new environment. you can still participate in the complete course for free. all questions should be reported as described above. Note: Due to the large number of students enrolled in this course (hopefully!). or the content of other course materials. this course is also part of the Improving Business Finances and Operations Specialization offered by the University of Illinois at UrbanaChampaign. assignment grading. assignment questions and answers. Thanks! Caveat for the Course I have been teaching courses to students in a brick-and-mortar setting since 2001 (yikes − am I getting that old?!?). You may also download a PDF version of the Syllabus. technical problems would include error messages. so welcome aboard! Getting and Giving Help You can get/give help via the following means:  Use the Learner Help Center to find information regarding specific technical problems.