This introductory course focuses on acquiring basic skills in applying mathematical finance and standard models used to assess profitability. Moving from an economic environment characterized by complete certainty, the analysis subsequently extends to incorporate uncertainty (risk) and how uncertainty affects the required rate of return on real-investment projects. Since the required rate of return emanates as an alternative cost of capital in well-functioning markets, the course also provides a brief introduction to capital market theory.
- Introduction: Brief overview of main topics and their general role in modern managerial economics.
- The basic tools of financial mathematics
- Models of profitability and use of decision criteria when applying the net present value principle, the internal rate of return and payback models.
- Portfolio diversification and estimation of relevant risk.
- Capital asset pricing model to estimate the risk-adjusted, required rate of return.
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