Welcome to

HADM 2250 Finance

with Professor Liu

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Introduction to Finance
Why are we here?
What will we learn?
How will we learn?

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Why Are We Here?
What is finance?
Why do we learn finance?

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Two Tradeoffs
Now vs. Future
Return vs. Risk

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What Will We Learn?
Value cash flows from loans, bonds,
stocks, projects
Make capital budgeting decisions
Analyze risk-return relations
Analyze cost of capital

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Example 1
You are going to work from age 22 to age 65,
and you save $2000 per year towards
retirement, on which you earn 5.8% per year.
How much will you have at retirement if you:
Save $2000 every year?
Save $2000 for the first 20 years only, then
no more?
Save $2000 for the last 20 years only, and
nothing before? Professor Fang Liu, 2017 6
Example 2
You are considering buying a car. You
have $4000 for a down payment, and
you can afford car payments of $750 per
month. The APR on a 2-year car loan
with monthly payments is 6.4%. How
expensive a car can you afford?

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Example 3
What is the highest price you would be willing to pay for:
A 5-year bond paying a 6% annual coupon, if your
required return is 8%?
A preferred stock with an annual dividend of $2.50, if
your required return is 9.5%?
A common stock that just paid a dividend of $3.50,
expects to have dividend growth of 10% per year for
the next 4 years, then 5% per year thereafter, and your
required return is 12%?

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Example 4
You own a piece of land and are considering three
alternative uses: a bar, a coffee shop, and an
apparel store. You assume that you would operate
your choice indefinitely, eventually leaving the
business to your children. Based on the following
information, what should you do?

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Example 5
If you are investing in two great stocks, is
there much advantage to adding more
stocks to your portfolio, or are you better
off staying focused on these two stocks?
If you already have 50 stocks, is there
much advantage to adding more stocks to
your portfolio?

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Example 6
If some stocks lie above the Security
Market Line (SML) and other stocks lie
below the SML,
What does this mean?
What should happen?

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Example 7
How do we calculate a firms weighted
average cost of capital (WACC)?
When is the WACC an appropriate
discount rate for proposed projects?
What should you do if it is not?

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How Will We Learn?
What is the best way to boost learning?
Experiment: Everyone reads a chapter,
after which
Group 1: Each gets to read/study it again.
Group 2: Each gets 1 blank sheet of paper.
Group 3: Each gets 3 blank sheets of paper.
Which group learns more?

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How Will We Learn?

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How Will We Learn?
Understand intuitions
Class discussion
Intuition check from slides
Practice, practice, practice!
In-class problems
Homework problem sets
Practice problems before exams

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 Advice from Former Students
Go to class and take good notes. It makes the
biggest difference when doing problem sets and
studying for exams.
Go to class! The examples and notes are
extremely valuable. Looking at the slides
without going isnt as helpful.
Printing out lecture slides and reading related
book chapters before class really helps.
Read the textbook to strengthen your
understanding of the contents.
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Advice from Former Students
Do all examples, practice problems, and
homework questions again before exams.
If struggling with a topic, talk to a TA or
professor.
Dont fall behind! Everything in this course
builds on itself, so falling behind is a
downward spiral.
Never be afraid to ask questions!
Be prepared to work hard. Take this course if
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First Assignment
Complete Graded Homework Consent
Sheet posted on BB, and return to Sue
Foote in Statler Hall 435.

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