B6302 CAPITAL MARKETS AND INVESTMENTS

Course Description:

This course studies the properties of fundamental securities (stocks and bonds) and
derivative securities from three perspectives: (1) the theory of their pricing, (2) the risk
management of portfolios composed of them, and (3) their use in corporate financial
transactions. This basic material serves as the foundation for all upper level finance
classes and is a prerequisite for them.

Type and Length of Exam:

Open book. Four hours is allowed for the exam. The use of calculators and/or notebook
computers is allowed.

Specific Topics Covered:

The following topics are covered in the course, and thus are eligible for the exemption
examination:

- The pricing of bonds

- The term structure of interest rates; forward rates
- The management of bond portfolio risk (notion of duration)
- Portfolio theory (notion of the efficient frontier)
- The CAPM, and the APT
- Market efficiency
- The pricing of options using simulation, and binomial trees
- The Black-Scholes formula
- The use of options for hedging and pricing complex securities
- Real options
- Futures contracts and their use for hedging
- Relationship of basic corporate financial transactions to the financial markets

Suggested Background:

Students who might wish to consider attempting to exempt from B6302 should have
already completed a rigorous (at least at the level of the textbook) course in capital
market theory. Such courses are often given either as a requirement for an undergraduate
business degree or as a requirement for an industrial engineering / operations research
degree. A general, cursory knowledge of the indicated topics is profoundly insufficient
to pass the exam.
Recommended Reading for Review:

Bodie, Kane and Marcus. Investments. McGraw-Hill Irwin Publishers