Students should be familiar with basic microeconomic concepts, such as: supply and demand functions, utility function, budget constraint and time discounting.

This course provides the basis for the analysis of financial decisions. It gives students the main analytical instruments that determine asset pricing and provide specialist knowledge in financial economics, including basic portfolio theory, pricing theory applied to corporate/government bonds and stocks.

After this course students are expected to know how to determine the value of risky investments, how to construct efficient portfolios, and how to identify and exploit arbitrage opportunities.

The students will learn how to use analytical instruments for the analysis of financial decisions. They will be encouraged to develop their critical thinking in order to think and reason with financial concepts as well as discern merits and faults of the journal articles discussed in class. Students will also learn how to present a piece of work and get confidence to speak in front of the class.

- Part I Introduction
a. The role of financial markets and institutions
b. Basic concepts in finance
- Part II Decision making under uncertainty
a. Expected utility theory
b. Measuring risk and risk aversion
- Part III: The demand for financial assets
a. Mean-variance preferences
b. The efficient frontier
c. Challenges to investment decisions
- Part IV Asset pricing model
a. The capital asset pricing model
b. The arbitrage pricing theory
The Arrow-Debreu pricing
- Part V The bond market
a. The term structure of interest rates
b. Bond pricing, yields and rate of return
- Part VI Stock valuation
a. Constant growth model (Gordon-Shapiro)
b. Price-earnings ratio
c. Efficient market hypothesis

Bodie, Z., Kane, A. and Marcus, A. 2010, Investments, McGraw Hill.