Course description

Financial Decision making with Excel

Introduction

A central element of the job of any professional in corporate finance, fund management, security analysis, or risk management is the real-world application of financial theories to provide quantitative answers to various problems. As those theories are usually presented in a sterile, simplified environment for pedagogical reasons, it is often not straightforward how they can be implemented in practice. This course aims at showing students how the sometimes abstract models and theories are used to address real-world problems encountered in practice. The practical implementation of the theories and models also facilitates the complete understanding of them. Additionally the students will be benefitted by having created throughout the course a collection of templates that can be readily used later on in practice.

Probably the most widely used tool by financial practitioners is Excel. During the course students will learn how to use this powerful program to apply a series of financial models which the students will likely have encountered in their previous courses. For each concept applied the course will provide a brief overview of the relevant theory or model but focus mostly on the practical side of the implementation. It will explain how these models can be implemented in Excel using its built-in functions, matrix calculation, and programming language (VBA). The course will also highlight which real-world financial data is the appropriate input for those models. It will point out different modeling options and discuss advantages and limitations of those approaches. The content of the course will employ theories that have been taught in previous classes. In various areas, the course will delve deeper and provide students with state of the art models that go beyond what was covered in previous courses. Thus, a good understanding of the material covered in the previous finance courses is required to fully benefit from this course.

Course content

  • Introduction to Excel and Bloomberg
  • Valuation and Capital Budgeting
  • Portfolio Choice
  • CAPM and Cost of Capital
  • Excel VBA Programming
  • Derivative Pricing
  • Interest Rate Modeling and Bond Pricing (if time allows)
  • Risk Management (if time allows)

Learning outcome knowledge

The students will acquire a good understanding of how different financial models can be efficiently implemented with the help of a spreadsheet program. More specifically the students will develop an understanding of the following topics:

  • Application of main concepts/techniques covered so far in the bachelor program
  • Which assumptions must be made in order to apply financial theories to solve real-world problems and what are the limitations of these models.
  • How to set up a valuation model and obtain the necessary financial information from Bloomberg.
  • Applying valuation models for investment decisions.
  • Construction of optimal portfolios, how to calculate the necessary input variables and assumptions behind the approaches.
  • What are the common problems with the standard portfolio choice approach and how can it be improved?
  • Using equilibrium models to calculate the cost of capital.
  • Implementing option pricing models.
  • How to use Excel VBA to develop new functions?
  • Identifying risk, understanding common risk measures, and their limitations. (if time allows)
  • Implementing risk management strategies in fund management and corporate hedging with derivative contracts. (if time allows)

 

Exam organisation

  • Written assignment: 30%
  • Written exam: 70%