MN50319 2020/2021 1




MSc in Accounting and Finance
MSc in Finance
MSc in Finance with Banking
MSc in Finance with Risk Management


THEORY OF FINANCIAL DECISION MAKING (MN50319)

Module Outline

Semester 1 (2020-2021)


Lecturer:
Unit convenor: Dr Winifred Huang
Email: w.huang@bath.ac.uk


Seminars:
Seminar tutor: Miss Chuxuan Xiao
Email: cx415@bath.ac.uk
Office hours: Mondays 11 am – 1 pm
(Here is the access link for the weekly office hours on Zoom: https://bath-ac-
uk.zoom.us/j/8114566613. The tutor will be available on this Zoom meeting
room during this time frame.)


1. CONTENT OF THE MODULE

The module is designed to give a compact introduction to the basic concepts underlying the
modern theory of financial decision making. Although, the main focus is on theoretical aspects,
the module will be rich in examples and designed to develop students’ intuitive understanding
of the theoretical concepts. The module will start by introducing the concept of utility and risk-
aversion. This will be followed by the mean-variance approach, which will build a conceptual
base for optimal portfolio choice theory and theories of asset pricing. Term structure of interest
rates will be discussed to develop an understanding of bond pricing. Forward and futures
contracts, and options will be introduced to address risk-hedging. A discussion of real options
and basic models of their valuation will follow. Finally, the module will close with the
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discussion of the Efficient Market Hypothesis, its theoretical foundations and empirical
evidence.


2. MODULE ORGANISATION

Lectures: A total of ten 2-hour lectures will be delivered.

Seminars: There will be a one-hour seminar every week from Week 2 for each student to
complement and extend the material covered during the lectures.

Syllabus: The detailed structure of the module is outlined below.


Week Lecture Topic
Copeland
et al
(2014)
Content
for
seminars
1 L1 Introduction Ch. 1, 2 -
2 L2 Investment decisions; utility under uncertainty Ch.2, 3 L1
3 L3 Mean-variance portfolio theory
Ch.3 (F,
G), 5
L2
4 L4 Asset pricing models Ch.6 L3
5 L5
Asset pricing models /
Term structure of interest rates
Ch.6
Ch.8
L4
6 L6 Term structure of interest rates Ch.8 L5
7
Online quizzes (not for grading)
(content coverage: L1-L5 till asset pricing models)
L6
8 L7 Forwards/Futures Ch.7 Q&A
9 L8 Forwards/Futures Ch.7 L7
10 L9 Options and real options Ch.7, 9 L8
11 L10 Efficient market hypothesis; Revision Ch.10, 11 L9
15 Reading week (no lecture) for January exam




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3. ASSESSMENT AND EXAM

The final grade for the unit will be 100% based on the online timed examination in January
2021. (Note: In week 7, the online quizzes performance will not be graded, i.e. the quizzes
practice will not be part of the formal assessment.)


4. LITERATURE/ READINGS

The core textbook for the course is:
T.E. Copeland, J.F. Weston, and K. Shastri, Financial Theory and Corporate Policy, 2014, 4th
edition, Pearson New International Edition, Pearson, ISBN 978-1-29202-158-4.
(e-version is available from the library website)

In addition to the above several journal articles will also be recommended for compulsory
reading. Students are also strongly encouraged to broaden their understanding by reading other
academic and practitioner articles and publications.