FINANCIAL ECONOMICS
Swaps
Swaps
Derivatvescontracts can be divided into two general families:
1. Contngent claims, e.g. optons
2. Forward claims, which include exchange-traded futures,forward contracts
andswaps
Swaps
A swap is an agreement between two par

Cost of Capital
Outline
The Cost of Capital:
The Cost of Equity
The Costs of Debt
The Weighted Average Cost of Capital
Cost of Capital-Motivation
We look at the whole firm as an Asset. This asset
generates income. How ?
Then, ask the question what i

Financial Leverage and Capital
Structure Policy
Outline
The Capital Structure Question
The Effect of Financial Leverage
Capital Structure and the Cost of Equity
Capital
M&M Propositions I and II with Corporate
Taxes
Bankruptcy Costs
Optimal Capital

Option Valuation
Outline
Options and Stock Options
Put-Call Parity
The Black-Scholes Option Pricing Model
More about Black-Scholes
Valuation of Equity and Debt in a
Leveraged Firm
Options and Corporate Decisions: Some
Applications
Option Contracts
The r

FINANCIAL ECONOMICS
Reminder : Quiz 1 7/14-7/18
Lecture 1 and 2
Participation
Read the notes section in the slides , there is added information and
explanation
Expected Return & Risk
Return
Expected Value
Variance
Standard dev or volatility
Utility An

FINANCIAL ECONOMICS
Rutgers University
Economics 393
L.DeMarco
Financial Economics
A branch of economics that analyzes the use and distribution of
resources in markets in which decisions are made under
uncertainty.
Financial decisions must often take in

FINANCIAL ECONOMICS
Week 6
http:/www.wallstreetsurvivor.com/
Swiss franc unpegged
When the SNB decided to unpeg to the euro what
happen?
The euro devalued against the franc
Franc was thought of as a safe haven think again
Events
When franc is attract

FINANCIAL ECONOMICS
Week 3
Reminder :
Participation
Quiz 1 due 7/18 1 pm
RP 1 to be released due 7/19 8pm
3 Models for decision making under uncertainty
State-preference model
Expected Utility Hypothesis
Mean-Variance Model
Remember we are investors a

FINANCIAL ECONOMICS
Week 4
Reminder :
RP1 excel and questionnaire due 7/19
Participation
Portfolio basics
Portfolio return
Portfolio variance
Correlation Coefficient
Portfolio variance ( with correlation coefficient)
Efficient Frontier
So why do you care

FINANCIAL ECONOMICS
Week 5
Reminder :
RP1 submission
Ch 5 and 6 in text
Recap
We began with the basic statistical calculations to help us make decisions under
uncertainty
Utility analysis investor preferences, wealth and the assumptions of risk averse
i

Financial Economics
L.DeMarco
ldemarco@econ.rutgers.edu
Summer 2016
220: 393
Class Hours: M,T,W,Th 10:15-12:05 pm
Office Hours: Monday 9:00-10:00 am
Rutgers University
Department of Economics
Classroom :Scott Hall 102
Office : NJ Hall 102
Wed 9:00-10:00 a

Mean Variance Efficiency, CAPM,
the SML, Factor Model and CCAPM
By Diep Duong
Outline
Returns
Expected Returns and Variances
Portfolios, Mean-Variance Efficiency
Announcements, Surprises, and Expected Returns
Risk: Systematic and Unsystematic
Diversificat

Net Present Value and
Other Investment Criteria
Outline
Net Present Value
The Payback Rule
The Discounted Payback
The Average Accounting Return
The Internal Rate of Return
The Profitability Index
Good Decision Criteria A TEST
If you decide whether to inv

Stock Valuation
by Diep Duong
Outline
Common Stock Valuation using Present
Value Model
Some Features of Common and Preferred
Stocks
The Stock Markets
Value Stock as An Asset
Now you are an expert in Present Value (PV)
model. You also have a big exampl

FINANCIAL ECONOMICS
Week 7
RP2 due Sunday 10/16 6pm
Participation
Asset Classes
Stocks
Bonds
Futures Commodities and Financial Futures
FX
Derivatives Options and Swaps
Short- to sell an asset
To close the position you must buy it back
Long to buy an as

FINANCIAL ECONOMICS
Behavioral Finance
RP4 due 12/7 8pm
RP5 due 12/14
Quiz 2 12/9-12/12
Course evaluation
Asset Classes
Intro to making decisions under uncertainty
Portfolio theory and CAPM
Measurements of risk and volatility
Hedging and Speculation
Stock

$9m
loan
fixed
Codelco
$9m
floating
Goldman
floating
interest rate
Codelco agrees to pay fixed 2.55% per annum on a notion
In return Codelco will receive a floating rate on the $9m ov
Goldman will pay floating = 6 month LIBOR + 15 bp
Current 6 month LIBOR

Lecture 2 - Financial Statements,Income Statements and Cash Statements
by Diep Duong
20 JAN 2011
Table of contents
1
Balance Sheet Asset,Liability and Owner Equity Asset, Liability and Liquidity Balance Sheet and Value of Firm Income Statement Taxes Cash

Lecture 1 - Overview of Corporate Finance and Financial Market
by Diep Duong
18 JAN 2011
Table of contents
1
Corporate Finance and Forms of Business Organization Corporate Finance Forms of Business Organization
2
Financial Markets
An Overview in Macro Con

RATIO ANALYSIS
by Diep Duong
Ratio Analysis
Ratios allow for better comparison through time or
between companies
For each ratio
- What does the ratio measure ?
- Why is the ratio important ?
Ratios are used both internally and externally
3-2
Categories of

Lecture 4
Lessons from Capital Market
History and Efficient Market
Hypothesis
By Diep Duong
Some Motivations
We consume and save in a way to maximize our
lifetime utility.
Financial markets help increase our utility. How? Savers can
Defer consumption to

Lecture 5
Present Value and The
Time Value of Money
By Diep Duong
Chapter Outline
Future Value and Compounding
Present Value and Discounting
Learn by examples
Example: The case of Imclone Systems
Takeover offer from Bristol-Myers Squibb, and subsequen

Interest Rates and Bond
Valuation
Outline
Bonds and Bond Valuation
More about Bond Features
Term Structure of Interest Rate
Inflation and Interest Rates
Bond Ratings
Some Different Types of Bonds
Bond Markets
Bond Definitions
Bond is a debt security, a c

Informational Approach of Financial Reporting and Market
Efficiency
Haobo Yin, Course Paper for Financial Economics
Abstract
From an information perspective, the role of financial information is to alter the
beliefs of the investors, and the extent to whi