Learning Objectives
5 objectives- Understand foundational concepts and principles of financial economics and the role of financial markets and institutions.
- Apply the time value of money concepts to evaluate financial decisions involving present and future values, annuities, discounting, and compounding.
- Analyze risk and return relationships and assess investment decisions using relevant quantitative methods.
- Evaluate capital budgeting and capital structure decisions using financial metrics and theories.
- Explore financial risk management techniques and the influence of behavioral finance on market dynamics and decision-making.
Content Outline
Preview1. Overview of Financial Economics
- Introduction to Financial Economics
- Definition and scope
- Relationship between finance and economics
- Key Financial Markets
- Money markets
- Capital markets
- Foreign exchange markets
- Role of Financial Institutions
- Banks
- Investment firms
- Insurance companies
2. Time Value of Money
- Concept and Importance
- Present Value (PV)
- Definition and calculation
- Discounting cash flows
- Future Value (FV)
- Compounding concepts
- Calculating future values
- Annuities
- Ordinary annuities
- Annuities due
- Applications in Financial Decision-Making
3. Risk and Return
- Understanding Risk
- Types of financial risk (systematic vs unsystematic)
- Measuring risk (variance, standard deviation, beta)
- Expected Return
- Calculating expected return
- Risk-return trade-off
- Investment Decision Making
- Capital Asset Pricing Model (CAPM) basics
- Portfolio risk considerations
4. Capital Budgeting
- Purpose and Importance
- Evaluation Methods
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
- Payback Period
- Profitability Index
- Project Selection Criteria
- Limitations and Practical Considerations
5. Financial Markets and Instruments
- Financial Markets Overview
- Stock markets
- Bond markets
- Foreign exchange markets
- Financial Instruments
- Stocks (equity securities)
- Bonds (debt securities)
- Derivatives (options, futures, swaps)
- Role in Capital Allocation and Liquidity
6. Portfolio Theory
- Introduction to Modern Portfolio Theory (MPT)
- Diversification
- Benefits and rationale
- Reducing unsystematic risk
- Risk Management
- Efficient Frontier
- Definition and graphical representation
- Optimal portfolio selection based on risk-return preferences
7. Capital Structure
- Definition and Importance
- Sources of Finance
- Debt financing
- Equity financing
- Trade-offs in Capital Structure Decisions
- Impact of Leverage on Firm Value
- Cost of Capital
- Weighted Average Cost of Capital (WACC)
- Implications for investment and financing decisions
8. Financial Risk Management
- Overview of Financial Risks
- Market risk
- Credit risk
- Liquidity risk
- Risk Management Techniques
- Hedging with derivatives (options, futures, swaps)
- Insurance
- Diversification and asset allocation
- Institutional and Individual Risk Management Strategies
9. Behavioral Finance
- Introduction to Behavioral Finance
- Psychological Biases Affecting Financial Decisions
- Heuristics
- Framing effects
- Overconfidence
- Loss aversion
- Implications for Market Efficiency
- Market anomalies
- Limits to arbitrage
- Applications in Investor Behavior and Financial Markets
Unlock the full outline
Get the complete content outline, learning outcomes and assessment methods for Introduction To Financial Economics.
KSh 20 one-off, or included with a plan
Learning Outcomes
Unlock the outline above to see learning outcomes.
Assessment Methods
Unlock the outline above to see assessment methods.