Lecture 1 - FINM7006.pptVIP

* * * * * * * * * * * * * * * * * * * * * * Foundations of FinanceLecture 1 Course Overview and An Introduction to Financial Markets Lecture Readings: Foundations of Finance, Module 1, pp. 1-22. Administration I Lecturer for the semester: Anna von Reibnitz anna.vonreibnitz@anu.edu.au Phone:(or x54626 on campus) Office: 4.39 CBE Building Consultation Times: TBC * Administration II Assessment: Tutorial Quizzes (15%) Mid-Semester Exam (25% or 0%) Optional and redeemable HOPEFULLY ? to be held in Week 7 (more information relating to this will be discussed later in the term) Final Exam (60% or 85%) * Administration III Lecture Arrangements One lecture a week + Workshop Will be taped!! There is NO workshop this week! Content in Workshop? Also need to enrol in a tutorial. Tutorials start next week! There is no quiz next week, however, please see outline for details regarding quizzes. * 1. Course Overview During this course, we will consider the answers to the following questions: What are financial markets and what assets are traded within these markets?; What are the characteristics of assets traded in financial markets?; and, What is value and how do we measure the value of assets? 1. Course Overview (Continued) Valuing Financial Assets We can use the three key ideas in finance to consider the value of financial instruments and how it is measured, namely: The Time Value of Money; Diversification; and, Arbitrage. 1. Course Overview (Continued) The Time Value of Money In studying the time value of money, we will see it forms the basis for all asset valuations. In this course, we will study the following aspects of the time value of money: 1. Course Overview (Continued) Diversification Financial market participants want to make as much money as possible with the least risk. To reduce risk, market participants can diversify. If everyone diversifies, this tells us something about how assets are priced: It tells us the return required for a given lev