IB26615 Fundamentals of Finance
Introductory description
This is an elective module for WBS and joint degree students only.
 Introduce students to the workings of the equity, bond and derivatives markets.
 Equip students with the skills and understanding to use quantitative tools for pricing stocks, bonds and derivatives.
 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.
 Prepare students for advanced undergraduate and postgraduate studies in Finance.
Module aims
 Introduce students to the workings of the equity, bond and derivatives markets.
 Equip students with the skills and understanding to use quantitative tools for pricing stocks, bonds and derivatives.
 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.
 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.
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 and Interest Rates: Spot rates, forward rates, bond pricing, term structure of interest rates, Pure Expectations and Liquidity Preference Hypotheses.
Financial Derivatives: Arbitragefree futures pricing, binomial and BlackScholes option pricing.
Market Efficiency:Efficient Markets Hypothesis, calendar anomalies, speculative bubbles, empirical tests.
Learning outcomes
By the end of the module, students should be able to:
 Describe how 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 derivatives markets price securities.
 Explain key theorectical 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 & Jordan BD Corporate Finance (3rd edition), McGrawHill 2016
Other texts:
Bodie Z, Kane A & Marcus AJ Investments (10th edition), McGrawHill 2014
Hull, J. C. (2015). Options, futures, and other derivatives (9th). Pearson Education
Subject specific skills
Use discounted cashflow techniques to value financial securities.
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 binomial model or the BlackScholes model.
Transferable skills
Solve structured numerical problems.
Write informed critiques of key issues in valuing risky assets.
Analyse case studies and construct arguments to support a particular solution.
Construct spreadsheets to:
(a) determine the riskreturn characteristics of portfolios of risky assets.
(b) price stocks, bonds and options.
Calculate the forward price of a traded asset using the noarbitrage principle.
Price option contracts using the binomial model or BlackScholes model.
Calculate spot and forward rates of interest, and use these to price bonds
Study time
Type  Required 

Lectures  10 sessions of 1 hour (13%) 
Seminars  9 sessions of 1 hour (12%) 
Online learning (independent)  10 sessions of 1 hour (13%) 
Private study  49 hours (63%) 
Total  78 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 D3
Weighting  Study time  

Participation  10%  7 hours 
Inperson Examination  90%  65 hours 

Assessment group R2
Weighting  Study time  

Inperson Examination  100%  

Feedback on assessment
Inclass and on my.wbs
Prerequisites
To take this module, you must have passed:
Postrequisite modules
If you pass this module, you can take:
 IB23615 Finance 2: Corporate Finance
 IB35915 Derivatives and Risk Management
 IB39415 International Financial Management
 IB3M115 Fintech
 IB3M715 Alternative and Responsible Investments
 IB35715 Investment Management
Antirequisite modules
If you take this module, you cannot also take:
 IB25315 Principles of Finance 1
 IB23512 Finance 1: Financial Markets
There is currently no information about the courses for which this module is core or optional.