This course provides a general survey of finance and investments. It emphasizes an intuitive, logically rigorous understanding of the theory and practice of financial markets, illustrating the concepts through examples and cases drawn from diverse settings. Topics covered include: present value; diversification; the trade-off between risk and return; market efficiency; pricing of stocks and bonds; the capital asset pricing model; term structure of interest rates; the principle of arbitrage; derivative securities such as forwards, futures, and options; use of derivatives for hedging; real options; and risk management. Case discussions illustrate a wide range of applications of the theory including pension fund investment, rate of return regulation, hedge fund strategies, currency risk management, weather micro-insurance, privatization, deposit insurance, and the subprime crisis.
Prerequisites: Assumes knowledge of basic high school mathematics, familiarity with spreadsheets, and a course in microeconomics.