IB25315 Principles of Finance 1
Introductory description
This is an elective module for nonWBS students.
Introduce students to the workings of the equity and bond markets.
Equip students with the skills and understanding to use quantitative tools for pricing stocks and bonds.
Develop in students a critical understanding of the tradeoff between risk and return, and of techniques for exploiting that tradeoff to maximum effect.
Make students aware of key empirical tests of the Efficient Markets Hypothesis, and the implications of those empirical findings.
Provide students with structured opportunities to practise using the key tools and techniques of Financial Markets theory.
Introduce students to the workings of the derivatives markets.
Equip students with the skills and understanding to use quantitative tools for pricing derivatives.
Prepare students for advanced undergraduate and postgraduate studies in Finance.
Module aims
Introduce students to the workings of the equity and bond markets.
Equip students with the skills and understanding to use quantitative tools for pricing stocks and bonds.
Develop in students a critical understanding of the tradeoff between risk and return, and of techniques for exploiting that tradeoff to maximum effect.
Make students aware of key empirical tests of the Efficient Markets Hypothesis, and the implications of those empirical findings.
Provide students with structured opportunities to practise using the key tools and techniques of Financial Markets theory.
Introduce students to the workings of the derivatives markets.
Equip students with the skills and understanding to use quantitative tools for pricing derivatives.
Prepare students for advanced undergraduate and postgraduate studies in Finance.
Outline syllabus
This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.
Financial Arithmetic:
Discounted cash flow, annuities, perpetuities, Gordon growth model, net present value, internal rate of return.
Investment under Certainty:
Intertemporal consumption, Fisher Separation.
Investor Preferences :
Risk aversion, Expected utility
Optimal Portfolio Selection:
Diversification, Risk vs. Return, Capital Market Line.
Capital Asset Pricing Model:
Beta, CAPM, Securities Market Line
Bonds & Interest Rates:
Spot rates, forward rates, bond pricing, term structure of interest rates, Pure Expectations and Liquidity Preference hypotheses.
Market Efficiency :
Efficient Markets Hypothesis, calendar anomalies, speculative bubbles, empirical tests.
Financial Derivatives:
Arbitragefree futures pricing, binomial and BlackScholes option pricing.
Learning outcomes
By the end of the module, students should be able to:
 Describe how the equity and bond markets function, and their importance to both individual investors and institutions.
 Explain how these markets price stocks and bonds.
 Explain how risk can be diversified by forming portfolios of assets, and how to construct the optimum portfolio.
 Critically assess theoretical relationships between risk and return.
 Distinguish between spot and forward rates of interest.
 Formulate different hypotheses for the term structure of interest rates.
 List the different forms of market efficiency, and interpret the results of key tests of the Efficient Markets Hypothesis.
 Describe how derivatives markets function.
 Explain how these markets determine the prices of derivative securities.
 Explain key theoretical models, and reflect critically on the limitations of those models and the assumptions that underpin them.
 Interpret empirical evidence.
 Solve structured numerical problems and analyse casestudy information.
 Communicate complex ideas effectively, both verbally and in writing.
Indicative reading list
REQUIRED TEXT:
Hillier D, Ross SA, Westerfield RW, Jaffe J and Jordan BD, Corporate Finance (3rd ed. 2016), McGrawHill
OTHER TEXTS:
Bodie Z, Kane A & Marcus AJ, Investments (12th ed. 2020), McGrawHill
Copeland TE, Weston JF & Shastri K, Financial Theory and Corporate Policy (4th ed. 2013), Pearson AddisonWesley
Subject specific skills
Use discounted cashflow techniques to value financial securities and/or estimate the value added by capital projects.
Write informed critiques of key issues in asset valuation.
Analyse short casestudies and construct arguments to support a particular solution.
Calculate spot and forward rates of interest from observed market prices of calibration bonds, and use these rates to price other bonds and identify arbitrage opportunities.
Calculate the forward price of a traded asset using the noarbitrage principle.
Price option contracts using the oneperiod binomial model or the BlackScholes model.
Transferable skills
Construct spreadsheets to value financial instruments and test how robust those values are to changes in key inputs.
Use webbased resources to source and retrieve financialmarket data, and spreadsheets to process that data.
Explain and interpret financialmarket data.
Use analytical models and/or spreadsheets to value simple derivative securities and to assess how robust those values are to changes in key inputs.
Study time
Type  Required 

Lectures  10 sessions of 1 hour (7%) 
Seminars  9 sessions of 1 hour (6%) 
Online learning (independent)  10 sessions of 1 hour (7%) 
Private study  49 hours (33%) 
Assessment  72 hours (48%) 
Total  150 hours 
Private study description
No private study requirements defined for this module.
Costs
No further costs have been identified for this module.
You do not need to pass all assessment components to pass the module.
Assessment group D8
Weighting  Study time  

Participation  10%  7 hours 
Inperson Examination  90%  65 hours 

Assessment group D9
Weighting  Study time  

Participation  10%  7 hours 
Inperson Examination  90%  65 hours 

Assessment group R2
Weighting  Study time  

Inperson Examination  100%  

Feedback on assessment
Feedback via My.WBS
Prerequisites
To take this module, you must have passed:
Postrequisite modules
If you pass this module, you can take:
 IB35915 Derivatives and Risk Management
 IB25415 Principles of Finance 2
 IB3M115 Fintech
 IB3M715 Alternative and Responsible Investments
 IB35715 Investment Management
Courses
This module is Optional for:
 Year 4 of UIBAMN34 Law and Business Four Year (Qualifying Degree)

UECA3 Undergraduate Economics 3 Year Variants
 Year 2 of L100 Economics
 Year 2 of L100 Economics
 Year 2 of L100 Economics
 Year 2 of L116 Economics and Industrial Organization
 Year 2 of L116 Economics and Industrial Organization
 Year 3 of L116 Economics and Industrial Organization
 Year 3 of L116 Economics and Industrial Organization

UECALM1D Undergraduate Economics, Politics and International Studies
 Year 2 of LM1D Economics, Politics and International Studies
 Year 2 of LM1D Economics, Politics and International Studies
 Year 2 of UIPAL8N1 Undergraduate Global Sustainable Development and Business
 Year 4 of UIBAMN32 Undergraduate Law and Business Studies
 Year 5 of UIBAMN37 Undergraduate Law and Business Studies (Qualifying Degree) with Intercalated Year
 Year 5 of UIBAMN36 Undergraduate Law and Business Studies with Intercalated Year (4+1)

USTAG300 Undergraduate Master of Mathematics,Operational Research,Statistics and Economics
 Year 3 of G300 Mathematics, Operational Research, Statistics and Economics
 Year 4 of G300 Mathematics, Operational Research, Statistics and Economics

USTAG1G3 Undergraduate Mathematics and Statistics (BSc MMathStat)
 Year 3 of G1G3 Mathematics and Statistics (BSc MMathStat)
 Year 4 of G1G3 Mathematics and Statistics (BSc MMathStat)

USTAG1G4 Undergraduate Mathematics and Statistics (BSc MMathStat) (with Intercalated Year)
 Year 4 of G1G4 Mathematics and Statistics (BSc MMathStat) (with Intercalated Year)
 Year 5 of G1G4 Mathematics and Statistics (BSc MMathStat) (with Intercalated Year)
This module is Unusual option for:

UPHAV7ML Undergraduate Philosophy, Politics and Economics
 Year 3 of V7ML Philosophy, Politics and Economics (Tripartite)
 Year 3 of V7ML Philosophy, Politics and Economics (Tripartite)
 Year 3 of V7ML Philosophy, Politics and Economics (Tripartite)
This module is Option list A for:
 Year 3 of UESAHN15 BEng Engineering Business Management
 Year 4 of UESAHN13 BEng Engineering Business Management with Intercalated Year
This module is Option list B for:
 Year 4 of UMAAG105 Undergraduate Master of Mathematics (with Intercalated Year)

UMAAG100 Undergraduate Mathematics (BSc)
 Year 3 of G100 Mathematics
 Year 3 of G100 Mathematics
 Year 3 of G100 Mathematics

UMAAG103 Undergraduate Mathematics (MMath)
 Year 3 of G100 Mathematics
 Year 3 of G103 Mathematics (MMath)
 Year 3 of G103 Mathematics (MMath)
 Year 3 of UMAAG106 Undergraduate Mathematics (MMath) with Study in Europe

USTAGG14 Undergraduate Mathematics and Statistics (BSc)
 Year 3 of GG14 Mathematics and Statistics
 Year 3 of GG14 Mathematics and Statistics
 Year 4 of USTAGG17 Undergraduate Mathematics and Statistics (with Intercalated Year)
 Year 4 of UMAAG101 Undergraduate Mathematics with Intercalated Year

USTAY602 Undergraduate Mathematics,Operational Research,Statistics and Economics
 Year 3 of Y602 Mathematics,Operational Research,Stats,Economics
 Year 3 of Y602 Mathematics,Operational Research,Stats,Economics
 Year 4 of USTAY603 Undergraduate Mathematics,Operational Research,Statistics,Economics (with Intercalated Year)
This module is Option list G for:

UPHAV7ML Undergraduate Philosophy, Politics and Economics
 Year 2 of V7ML Philosophy, Politics and Economics (Tripartite)
 Year 2 of V7ML Philosophy, Politics and Economics (Tripartite)
 Year 2 of V7ML Philosophy, Politics and Economics (Tripartite)