FINANCIAL ECONOMICS

This course is an introduction to the basics of financial economics.
It introduces the students to the financial decision making process: essentials of firms’ investment decisions, risk‐and‐return trade‐off, investors’ portfolio choices, and theoretical basis of asset pricing. In doing so, the class covers fundamental theories of financial economics. This course, together with the “Financial Markets” course that follows it, seeks to provide a solid knowledge of finance that is needed for future finance courses.

In the first part of the course the emphasis is on time value of money (TMV) and its applications, including capital budgeting. After a brief review of some of the notions of probability, the second part of the course is devoted to the
fundamental theories of finance: Portfolio Theory and the Capital Asset Pricing Model (CAPM).

After completing this course, students will have a good understanding of:

• the principles of project selection and investments by corporations
• the risk and return trade-off in financial markets
• fundamental theories of financial economics (Portfolio Theory and CAPM)