Introduction: Introduction to finance, Functions of Finance, Principles of Finance,
Agency Problem, Financial System
Time Value of Money: Future value, Present value, Future value versus present value, Future value
of an annuity, Present value of an annuity, Ordinary annuity versus annuity due
Time Value of Money: Present value of uneven cash flow/ mixed stream, Perpetuity and Annuities
Solving for time & interest rate, Solving for payment of an annuity, Amortization schedule
Risk & Return: Defining risk and return, Probability and its application in finance, Calculation of expected
return using probability and using historical return data, Calculation of standard deviation and its
application, Calculation of coefficient of variation and its application, Risk aversion and risk premium,
Concept of portfolio, Calculation of expected return and risk of a portfolio, Calculation of correlation
coefficient, Comparison between risk-return of an individual investment and a portfolio, Process of
diversification and risk reduction through it, Concept of systematic and unsystematic risk, Concept of beta,
Portfolio beta, Relationship between risk and rates of return, Security market line, Market risk premium,
Capital Asset Pricing Model
Bond Valuation: Bonds, Features of a bond: coupon and coupon rate, Maturity date, Original maturity,
Face value, Valuation of bonds: annual coupon, Semiannual coupon, Zero coupon, Yield to Maturity, ·
Factors affecting bond price.
Stock Valuation: Features of a common stock, Comparison between the features of a common stock and
the features of a bond, Common stock valuation: Normal, or constant, growth, Supernormal or noncontact
growth, Pros & cons of common stock, Issuer’s viewpoint, Investor’s viewpoint.
Cost of Capital: Basic definition: Capital components, Equity components, Debt components, Cost of debt:
Before tax, After tax; Cost of preferred stock, Cost of retained earnings: CAPM approach, DCF approach,
Bond yield plus risk premium approach, Cost of newly issued common stock, Weighted average cost of
capital, Rationale behind using WACC as discount rate/required rate
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Capital Budgeting Techniques: Definition and use of capital budgeting in business, Techniques of project
evaluation: Payback period, Internal rate of return, Net present value, Profitability index, Independent
project, Dependent project, Mutually exclusive project