Campbell R. Harvey,
Fuqua School of Business, Duke University, Durham, NC
National Bureau of Economic Research, Cambridge, MA
Latest Revision: October 26, 1995.
The objective of this course is to provide a rigorous introduction
to the fundamental principles of asset valuation and financing
in competitive financial markets. The course is designed to provide
the student with the tools that are necessary to analyze the financial
issues presented in the elective courses.
The course materials are designed to be long-lasting. This year all
course materials are available through my WWW site - there will be no
course packet. The goal is to develop a set of lecture notes which are
updated every year. Students and graduates will have access to these notes.
The course material will be presented in lectures and problem sets.
Four problem sets will be distributed during the semester.
Most of the assignments will require
computations. Knowledge of a spreadsheet package such as
or EXCEL is very important. Problem sets are to be completed individually.
All students must adhere to the honor code.
The grade for the course will be based on performance on the assignments
and two exams. The course grade is determined by the following formula:
Course Grade = A + Max[F, .4M + .6F]
A = Assignment Grade (Maximum 30)
F = Final Exam Grade (Maximum 70)
M = Midterm Grade (Maximum 70)
I realize that it is difficult to have a midterm after only two and a half weeks of lectures.
This grading algorithm makes the midterm optional.
The best time to talk to me is directly after class. If you need to schedule
an office visit, call my secretary Carol Bass at 660-7775
to arrange an appointment. I prefer to be reached by e-mail.
My user name is firstname.lastname@example.org.
There will be problem sessions which will
be announced in class. In addition,
there will be a pool of tutors for the course. I will circulate their
names and telephone numbers.
Sharpe, William F., Gordon J. Alexander and Jeffery V. Bailey,
Investments, Fifth edition, Prentice-Hall, 1995.
Brealey, Richard and Stewart Myers, Principles of Corporate Finance,
Fourth edition, McGraw-Hill, 1995. [New edition]
Ross, Stephen, Randolph Westerfield and Jeffery Jaffe, Corporate Finance,
Third edition, Richard D. Irwin, 1993.
- Although the exams are closed book, students may bring
into the exams one 8 1/2 x 11 sheet of paper with notes on
- Students are allowed to bring in silent battery
operated calculators to exams. Laptops, while useful for assignments,
are not needed in my exams.
- There are no verbal appeals of grades. I am glad to
regrade any assignment or exam. However, you must provide a statement
as to where and why there is a problem. Importantly, the entire exam or
assignment will be regraded. As a result, the regraded score may
increase, remain the same or decrease.
Outline and Reading Assignments
Note that you are not required to purchase a text. However, much of the
material is reinforced by reading Sharpe, Alexander and Bailey (SAB) and
either Brealey and Myers (BM) or Ross, Westerfield and Jaffe (RWJ).
The relevant sections in SAB, BM, and RWJ
are noted below along with the lecture dates. There will also be
supplementary readings and handouts distributed during the semester.
I realize that there is a considerable amount of reading assigned.
Remember that for the two exams, the lecture notes and problem sets
dominate both of the texts.
- 0. October
- Financial Instruments, Markets and Information.
- *Review of Statistics.
- Historical Behavior of Asset Returns.
Fixed Income Valuation
- 1. October 26
- Bond Valuation.
- Bond Valuation Practice Problems.
- Bond Valuation Examples.
- * October
- Review Session:
- 2. October 30
- Bond Valuation (continued).
- Assignment 1 online.
- *PV Mechanics and Equity Pricing.
- SAB, chapters 1-4, 13-16.
- BM, chapter 1-4.
- RWJ, chapters 1, 4-5.
- *Introduction to Derivatives.
- 3. November 2
- Option Valuation.
- Assignment 2 online.
- Black-Scholes tables.
- Bond and Option Review Questions.
- Option Pricing Problems.
- * November
- Review Session:
- 4. November 6
- Assignment 3 online.
- => Assignment 2a due.
- =>Assignment 1 due.
- Futures Hedging Problems.
- SAB, chapter 18-19.
- BM, chapters 20-21.
- RWJ, chapter 21, 24.
- 5. November 9
- Special Session: Derivatives in Risk Management.
- Midterm review. Fall 1994 Midterm.
- => Assignment 3a due.
- 6. November 13
- Midterm examination (2.5 hours, in class).
- 7. November 16
- Optimal Portfolio Control.
- Review of Matrix Algebra.
- SAB, chapters 6, 7.
- BM, chapters 7, 8.
- RWJ, chapter 9-11.
Asset Pricing Models
- 8. November 20
- Optimal Portfolio Control (continued).
- Asset Pricing and Risk Management.
- 9. November 27
- Asset Pricing and Risk Management (continued).
- => Assignment 2b due.
- Assignment 4 online.
- SAB, chapters 7, 8, 15, 16, 24.
- BM, chapter 9.
- RWJ, chapter 10.
Performance Evaluation and Market Efficiency
- 10. November 30
- Quantitative Performance Evaluation.
- => Assignment 3b due.
- BM, chapter 13.
- SAB, chapters 8, 23.&
- Graham and Harvey (1995).
Corporate Policy and Control.
- 11. December 4
- Capital Structure and Payout Policies.
- => Assignment 4 due.
- Jensen (1989, 1991).
- 12. December 7
- Project Evaluation and International Finance
- Review. Final Exam Fall 1994.
- 15. December 15
- Final examination.
*not currently available
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