Intermediate Methods in Economics & Finance

INTERMEDIATE METHODS IN ECONOMICS & FINANCE

2002/2003

CONTENTS

Page

Teaching Staff 2

Prerequisites 2

Module Aims 2

Learning Objectives 3

Delivery Mechanisms 4

Student Workload 4

Summative Assessment 4

Formative Assessment 5

Assessment Criteria 5

Communication 5

Obtaining Help 6

Module Syllabus 7

Student-centred Learning 9

Small group sessions 10

N.B. This handbook is intended for the guidance of students taking this module in 2002/2003. Whilst the details contained in this handbook represent teaching staff intentions at the time of writing, it is in the nature of higher education that some module information, such as syllabus, reading lists and assignments, may be subject to modifications during the teaching of a module. Teaching staff reserve the right to make such minor changes in the matters covered by this publication and will endeavour to publicise any such changes as widely and timely as possible.

INTERMEDIATE METHODS IN ECONOMICS & FINANCE

2002/03

TEACHING STAFF

MODULE LEADER: Dr Leslie Reinhorn

Tel: 0191 374 7285

E-mail:

OTHER TEACHING STAFF: Dr Thomas Renström

Tel: 0191 374 7279

E-mail:

PREREQUISITES Elements of Economics and Economic Methods (or

equivalent)

MODULE AIMS

The module seeks to:

·  develop your critical understanding and knowledge of quantitative methods in economics and finance;

·  build on the skills obtained in Level 1, and provide a grounding for further study in Level 3;

·  provide you with the opportunity to participate in student-centred learning drawing on recent research;

·  offer you the opportunity to develop some key skills.

LEARNING OBJECTIVES OF THE MODULE

At the conclusion of the module you should:

·  have knowledge and understanding of intermediate methods in economics and finance

·  demonstrated knowledge and an ability to apply quantitative techniques to applied issues in economics and finance

·  have practised problem solving and analytical skills

·  have had the opportunity to further develop skills in independent learning drawing on recent research

In addition, you will have had the opportunity to develop the following key skills:

·  Written Communication - e.g. by completing formative assignment and through summative assessment.

·  Interpersonal Communication - e.g. by using e-mail to communicate with other students and class leaders; discussing prepared material in classes with both the class leader and other students in the group.

·  Oral Presentation - e.g. by explaining the answers to class questions to other students and the class leader; in general, by actively participating in discussion during classes.

·  Planning, Organization, and Time Management - e.g. by preparing for classes; observing the strict assignment deadlines; downloading and revising before the relevant lectures any course material from DUO; preparing for examinations.

·  Problem Solving and Analysis - e.g. by applying the necessary analytical and quantitative skills in intermediate methods in economics and finance; in answering class questions and undertaking assessed work.

·  Initiative - e.g. by searching relevant literature and information in preparation of formative assignment and student-centred learning.

·  Numeracy - e.g. by applying core mathematical and statistical skills to answer a range of class and examination questions.

·  Computer Literacy and Information Retrieval - e.g. by accessing and downloading teaching material from DUO; and undertaking bibliographical search and information retrieval for student-centred learning.

DELIVERY MECHANISMS

The module is delivered by a mixture of lectures, classes and student-centred learning as follows:

Number Frequency Duration

Lectures 22 1 per week 1 hour

Classes* 8 4 in each term 1 hour

Student-centred learning 4 4 in second term 1 hour

* Classes, of which there are 8 throughout the year, provide a structured programme of work designed to reinforce knowledge and encourage independent study. All students are expected to prepare answers to all questions for each tutorial and to be prepared to enter into discussion of the issues. The member of staff in charge of the tutorial will take a lead, but students are expected to make major contributions.

STUDENT WORKLOAD

In addition to attending lectures and classes and undertaking preparation for classes and formative and summative assessments and assignments, you are expected to undertake independent reading and learning. This module is one of six you take during the year and you should therefore devote approximately one-sixth of your (full-time) working week to teaching and learning for this module. Obviously, there will be some weeks in which you devote more time to one module and less to others, but on average about one-sixth of your work time should be devoted to this module. As a guide, the University Teaching and Learning Handbook defines a single undergraduate module as a study unit comprising 200 hours of Student Learning Activity Time (SLAT) per annum. The SLAT hours include all formal contact hours (lectures, classes, seminars, workshops etc), the time devoted to background reading, and all preparation and reading time associated both with the formal contact hours and the formative and summative assessments (including problem sets, other assignments and examinations).

SUMMATIVE ASSESSMENT

The module is assessed by means of an examination in May/June. Details of the format are shown in the final honours handbook (see the section ‘Assessment of Performance’) and on the examinations noticeboard. The final honours handbook also contains information on how we mark, including grade descriptors.

FORMATIVE ASSESSMENT

The main aim of the formative assessment is to help you, in a structured way, to understand the material and its applications, consolidate your knowledge and further develop relevant skills.

Students will undertake one formative assignment during the year. The formative assignment will consist of a set of problems to be submitted no later than 12 noon, Monday 9 December 2002. Details will be available on DUO.

Students must put a declaration on the front of their submitted work that must be signed and dated. The declaration should read as follows:

“The solution to the problems is the result of my own work. Material from the published or unpublished work of others, which is referred to in my work is credited to the author in question in the text. My work is approximately X,X00 words in length.”

ASSESSMENT CRITERIA

Performance in the formative and summative assessments for the module is judged against the following criteria:

·  Knowledge of relevant concepts and issues

·  Depth of understanding and extent of critical evaluation (including evidence of wider reading)

·  Evidence of appropriate analysis

·  Ability to synthesise relevant material from a range of sources

·  Structure and clarity of presentation.

STAFF-STUDENT AND STUDENT-STUDENT COMMUNICATION

Staff will communicate with you via announcements in lectures and classes, notices on the notice boards, e-mails, the internal post and the announcement board on DUO. You should check your e-mail and notice boards in the Department regularly, possibly once a day. You should also check regularly the module entry on DUO, where lecture material will be available before each lecture. If you need to meet teaching staff during term time, simply go to their offices during the Student Consultation Hours posted on their office doors and on DUO, when an appointment is not needed. If you cannot do so because of timetable constraints, or because it is an urgent matter, you can arrange to see staff outside their consultation hours. The most effective way to arrange a meeting is by e-mail; alternatively, you can use the telephone or the internal post, or briefly talk to staff after lectures and classes, keeping in mind, however, that they may have to rush to another teaching session.

If you wish to communicate with fellow students on matters relating to the module, you may ask your lecturer/tutor to make an announcement at the beginning/end of a lecture or class. Alternatively, you may send group e-mails via DUO, or individual e-mails.

DUO

The following material will be posted on DUO:

·  A copy of this handbook

·  Lecture notes (preferably to be viewed prior to the topic being covered in the lecture)

·  Assessment deadlines

·  Timetable changes

·  Other announcements

You should consult the module entry on DUO at least every 3 days.

OBTAINING HELP

You should always feel welcome to talk to staff whenever you wish to discuss any aspect of the module. Please do keep in touch with us. A small misunderstanding can turn into a big problem if it is not dealt with in a timely manner. It is our duty and pleasure to help you in any way we can to enjoy, and be successful in, this module.

The first port of call for any queries relating to your understanding of the material and study skills should be your module’s tutor. You should however feel free to get in touch with any of the relevant lecturing staff, especially for queries relating to the module's outline, lecture material and readings. The ultimate responsibility for the success of the module rests with the module leader, who is happy to discuss any aspect of the module with you and welcomes comments and suggestions on how to improve the module at any time during the year.

MODULE SYLLABUS

The following pages give details of topics covered by the module. Further information will be provided on DUO as the module progresses. It should be noted that each topic does not necessarily correspond to a single lecture. Lecture material is described first, followed by the student-centred learning topic.

REFERENCE MATERIAL AND BOOKS

Term 1

The reference material for Term 1 will be announced at the beginning of Term 1.

Term 2

The main course reference text for term 2 is:

Copeland, T.E., and J.F. Weston (1988), Financial Theory and Corporate Policy, Addison- Wesley.

Other useful references:

Chiang, Alpha C. (1984), Fundamental Methods of Mathematical Economics, McGraw-

Hill. Useful for mathematical requirements, and easy to read.

Jonathan E. Ingersoll, Jr. (1987), Theory of Financial Decision Making, Rowman & Littlefield. Useful for complementing Copeland and Weston, but is a rather

difficult text.

Additional references will be provided during the year. You should also undertake your own search for additional relevant literature and follow up relevant references contained in the literature identified below.

Dr Renström’s lecture notes and exercises will be posted on DUO (http://duo.dur.ac.uk/) during Term 2. The lectures are based on the notes, so they cover essential material. However, they are not substitutes for attendance at the lectures

MODULE OUTLINE

TERM 1 (MICHAELMAS)

Outline to be announced at the beginning of Term 1

TERM 2 (EPIPHANY)

Decision-making under uncertainty and asset pricing

1. Return, Risk and Choice under Uncertainty. Copeland and Weston: chapter 4 (introduction + part A + part B), chapter 6 (part A, and B1-B3), appendix B and D.

2. Choice under Uncertainty: Expected Utility and Risk Aversion. Copeland and Weston chapter 4 (part C).

3. Choice under Uncertainty: Risk and Insurance Premia. Copeland and Weston chapter 4 (parts D, F - H), appendix D (part D).

4. Introduction to Mean-Variance Efficient Portfolios. Copeland and Weston: chapter 6 (parts B4-B6, E1, and E3). Ingersoll: first two pages of chapter 4.

5. The Efficient Frontier and Mean-Variance Efficient Portfolios. Copeland and Weston: chapter 6 (parts B4-B6, E1, and E3). Ingersoll: pp. 82-87.

6. The Investment-Opportunity Set. Copeland and Weston: chapter 6, part C (part B and E can be substituted with lecture notes). Ingersoll: pp. 87-88.

7. The Capital Asset Pricing Model (CAPM). Copeland and Weston: chapter 6, parts E4-E5; chapter 7, parts A-F. (Results regarding fund separation in Ingersoll, pp. 143-145, [146-162 more difficult material], and p.164.)

8. Relaxing the assumptions: Zero-Beta CAPM, Taxation and Borrowing constraints. Copeland and Weston: chapter 7, part G (in particular part G1, G3, and G5).

9. The Arbitrage Pricing Theory (APT). Copeland and Weston: chapter 7, part J. (Ingersoll: chapter 7, pp. 166-170.)

STUDENT CENTRED LEARNING

TOPIC TO BE ANNOUNCED

This topic is not formally covered by lectures, but is intended to help you to further develop skills of student-centred learning. In particular, having undertaken study on this topic you should be able to

·  form a critical understanding of the topic

·  be able to undertake bibliographic search and information retrieval to identify relevant literature

·  be familiar with recent findings on this topic

In addition, you should be able to answer the following question, which will be summatively assessed on the examination paper:

THE QUESTION WILL BE ANNOUNCED IN TERM 1

In order to achieve these objectives, participating students will be allocated to groups and encouraged to investigate the topic in these groups. This process will take place as follows:

1. Groups of 4-5 students will be identified by staff
2. Students should read the following reference:

REFERENCE TO BE ANNOUNCED IN TERM 1

1. Each group should then meet at an agreed time (meeting 1) and discuss the paper. In discussing the paper, you should identify the main issues that relate to the above question. These should be written as a summary in bullet point form (maximum 500 words) and submitted to the group tutor, who will circulate the summary to all groups who have submitted a summary by the deadline.
2. Students should work independently to undertake bibliographical and on-line searches to identify other key and recent literature. The group should then meet (meeting 2) and produce an agreed reading list for further research and study. This will be circulated through the tutor as in 3. above. In addition, groups may choose at this meeting to allocate specific papers to individuals for investigation.
3. Students should then write summaries of the articles they have read and these summaries should be circulated to other students in the group and the tutor in advance of the third meeting.
4. The group will then meet (meeting 3) to discuss the work to date, exchange ideas, identify difficulties and areas where help is needed from the tutor. A list of issues should be forwarded to the tutor.
5. The tutor will arrange a meeting with all groups (meeting 4) to go through the issues raised by the students.

Details of meetings will be posted on DUO.

1.  SMALL GROUP SESSIONS

There will be 4 small group sessions in each of the two terms, at times and places TBA. Students are expected to prepare the questions for review before each session.

TERM 1

Students will be informed as soon as possible about the content of the term 1 seminars, via DUO.

TERM 2

Students will be informed as soon as possible about the content of the term 2 seminars, via DUO.

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