2020/2021

Personal Finance and Finance Math

Type: Minor

Delivered by: Department of Finance

Where: St.Petersburg School of Economics and Management

When: 1, 2 module

Instructors: Vasilisa A. Makarova

Language: English

ECTS credits: 5

Contact hours: 60

Course Syllabus

Abstract

The basic objective of this foundation course in finance is to summarize the fundamental theoretical aspects of finance relevant to the future study of finance and application within the scope of your master’s degree Essentially the course is an introduction to the theory and practice theory of modern financial economics and financial management, with a focus on capital markets and investments, and quantitative finance. Students will acquire basic financial calculation skills, learn how to estimate asset values and returns, acquire skills in applying scenario analysis and sensitivity analysis, and using Monte Carlo simulations to predict investment returns.

Learning Objectives

• Main objective of the course of the course "Personal Finance and Financial Mathematics" is to prepare students for finance, financial analysis and planning, taking into account the impact of micro and macroeconomic factors, in providing a sufficient level of knowledge and skills that allows for conscious and effective decisions in various areas of personal management finance, such as savings, investment, real estate, insurance, tax and pension planning.

Expected Learning Outcomes

• Student understands time value of money, patterns of financial decision making in increasing complexity of financial environment, knows mathematics of finance theory and methodology of financial decisions.
• Student understands specific questions the theory addresses, understands that finance issues are not isolated from each other, knows how and when finance theory can be applied to achieve a desired goal.
• Student understands, which theory is applicable in these circumstances and what are its practical limits.
• Student is familiar with empirical evidence, which support or reject hypothesis and predictions of a theory, able to critically evaluate current research in this field.

Course Contents

• The financial system, financial markets, the modern theory of finance
  The functions of the financial markets. Structure and classification of financial markets (according to the type of financial instruments, according to the method of placement of financial instruments by maturity instruments, according to the method of organization of transactions). The international financial market, eurobonds, euro. International securities market. Financial intermediaries. The role of financial intermediation to ensure the effectiveness of economic development. Types of financial intermediaries. Regulation of the financial system.
• Macro, micro factors that determine the financial environment
  Personal circumstances that influence financial thinking, income needs and risk tolerance, wealth or asset accumulation. Systemic or “Macro” Factors That Affect Financial Thinking: business cycles, changes in the economy’s productivity, changes in the currency value, changes in other economic indicators
• Financial information and financial assets
  Commonly used financial statements are the income statement. Results for a period are shown on the income statement and the cash flow statement. The cash flow statement: operating (recurring), financing (nonrecurring), and investing (nonrecurring). The balance sheet lists assets, liabilities (debts), and net worth. Net worth = assets - debts. Bankruptcy and the negative net worth.
• Financial mathematics and bases of financial calculations
  Simple and compound interest. Effective rate. Banking and mathematical dis-assignment .. Applications of simple and compound interest. Models of accounts with variable capital. Commercial and actuarial rules for a binary model. Consolidated payments. Inflation accounting. Accounting for taxation of interest income Refinancing rate The notion of financial flow. Timing chart. Calculation of the value of the financial stream, which has the character of rent. Credit calculations. Repayment of debt by one payment at the end of the term. Repayment of debt in installments by differentiated and annuity payments. Long-term credit schemes. Calculation of the effective rate. Short-term credit schemes. Calculation of the effective rate
• Hypothesis of an effective market and operations in an imperfect market
  The theory of rational expectations, formal statements and practice. Transaction costs. Liquidity. Introduction to taxation. Fundamentals of federal taxes. Early taxation and tax expenses. Average and marginal tax rates. Dividends and taxes on capital gains. Non-taxable bonds and a marginal investor. Taxes in the NPV. Tax regulation. Inflation. Determination of the inflation rate. Real and nominal interest rates. Interest rates and inflation expectations.
• Individual financial reporting. The financial analysis.
  Common-Size Statements. Common-Size Income Statement. Common-Size Cash Flow Statement. Common-Size Balance Sheet. Ratio Analysis
• Financial planning
  Necessity of financial planning. Objects and subjects of financial planning. Contents and purpose of financial planning. Financial plan, its meaning and essence in the process of financial planning. Types of financial plans. Tasks of financial planning. The main objectives of financial planning. Stages of financial planning. Methods of financial planning.
• Investments and performance evaluations
  Applications and recommendations for budgeting (NPV) "Economics of Project Interaction". Final project selection rule Project pairs and external factors Comparison of projects with different indicators. Expected, typical and most likely scenarios. Future unforeseen circumstances and real options. option evaluation in a risk-neutral environment. Decision trees: one set of parameters Decision trees: one set of parameters The index of profitability. Internal rate of return (IRR) Payback period problem
• Financial strategy
  Goals and logic. Detailed horizon vs. time gap. Methods: Direct extrapolation of historical cash flows; with detailed modeling of financial indicators. Policies and calculations from Pro Forma components. The cost of capital. The cost of capital, taking into account the growth rate of cash flows. Alternative assumptions and sensitivity analysis.
• Housing economics
• Personal risk management
  Evaluating Choices: Time, Risk, and Value
• Valuation of financial assets
  Valuation of shares, bonds. Hedging, forward and futures contracts. Options. Swaps. Pricing of derivative financial instruments.

Assessment Elements

• Homework projects
  The home assignments can be completed both individually and in groups (up to 5 participants).
• In-class activities
  The in-class participation covered the online attendance and in-class activity.
• Written assignment
• Final exam
  Online final test. The final exam consists of questions for each topic of the course and lasts 80 minutes.

Interim Assessment

• Interim assessment (2 module)
  0.3 * Final exam + 0.25 * Homework projects + 0.15 * In-class activities + 0.3 * Written assignment

Bibliography

Recommended Core Bibliography

• Alec N. Kercheval. (2012). Financial Economics: A Concise Introduction to Classical and Behavioral Finance, by T. Hens and M. O. Rieger. Quantitative Finance, (10), 1487. https://doi.org/10.1080/14697688.2012.695085

Recommended Additional Bibliography

• Fabozzi, F. J., Modigliani, F., & Jones, F. J. (2014). Foundations of Financial Markets and Institutions: Pearson New International Edition (Vol. Fourth edition Fabozzi, Modigliani, Jones). Harlow, Essex: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1418493
• Richards, T. (2014). Investing Psychology : The Effects of Behavioral Finance on Investment Choice and Bias. Hoboken, New Jersey: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=759584