Midterm exam
1/. To save $1000 each year for the next three years (at the end of each year), how much will you have
accumulated at the end of that time if the interest rate is 8% per year? (5 point)
2/. To save $600 each year for the next three years (at

Chapter 8 Valuation of Known
Cash Flows: Bonds
Using Present Value Factor to Value
Known Cash Flows
The formula for the present value of an
ordinary annuity of PMT for n period and an
interest rate of i
1 (1 i ) n
PVPMT ( PMT , i, n) PMT
i
For example:

Chapter 6
The Analysis of Investment Projects
The Net Present Value (NPV)
Investment Rule
The NPV rule is invest if the proposed projects
NPV is positive.
n
NPV (k )
t: time
k: cost of capital
t 0
CFt
(1 k ) t
Example:
Year
0
1
2
3
Net cash
flow
-$10

Part II Time and Resource
Allocation
Chapter 4 - Allocating Resources
Over Time
Compounding
Simple interest and compound interest.
Interest earned on interest already paid is
called compound interest.
Future value (FV)
Example:
FV $1,000 x(1 i )
i: t

Course syllabus
Financial Economics
1. Course title (code): Financial Economics
2. Number of credits: 3
3. Instructor(s): Dr. Cao Minh Man (caominhmaniu@yahoo.com)
4. Responsible department: School of Business
5. Prerequisite: None
6. Course Objectives:
T

Chapter 12 Portfolio
Opportunities and Choice
The process of personal portfolio
selection
It is a process to decide how much to invest in
stocks, bonds, securities, and other assets).
The life cycle: in portfolio selection the best
strategy depends on a

Chapter 13 Capital Market
Equilibrium
The capital asset pricing model (CAPM)
CAPM is used to determine a theoretically
appropriate required rate of return of an asset
(stock)
E (rj ) r f j E (rM ) rf
E (rj ): the expected return on the capital asset
r

Part IV Risk Management and
Portfolio Theory.
Chapter 10- Principles of Risk
Management.
What is risk?
Risk is uncertainty that affects peoples
welfare.
Risk aversion: risk averse people prefer the
lower-risk alternative for the same cost.
Risk manageme

Final exam
1/. To save $1000 each year for the next three years (at the end of each year), how much will you have
accumulated at the end of that time if the interest rate is 10% per year? (5 point)
2/. How much you have to put into a fund earning an inter