Syllabus

FNAN 421 Money and Capital Markets

Fall 2007

Gerald A. Hanweck, Professor of Finance, Click here for professor Hanweck's Home Page

Office hours: Before or after class, Tuesday and Thursday 1:00pm-3:00pm, or by appointment.

Office: Enterprise Hall, 227 Phone: 703-993-1855 Fax: 703-993-1870

Email: ghanweck@gmu.edu

Course Website: http://som.gmu.edu/sba/fnan421.htm

Course Schedule and Outline

Week of	Topic and Chapters of Texts and Important Dates
8/30	The Function of Financial Markets (F&M-1; Class Handouts) Chapter 1 Model
9/6	Savings, Investment, and Financial Markets (F&M-2,17; Class Handouts) Loanable Funds Model of Interest Rate Determination
	First Case/Problem Set Distributed (click here) Financial Institutions and Markets Topics
	NEW: Audio and Graphical February 15, 2000 Supply of Loanable Funds: Savings (Y0) Supply of Loanable Funds: Savings (Y1) Supply of Loanable Funds: Money Market Demand for Loanable Funds: Private Investment (Y0) Demand for Loanable Funds: Private Investment (Y1) Equilibrium for Loanable Funds: Demand for loanable funds = Supply
9/13	Commercial Banking and Other Financial Intermediaries and Their Role in the Economy (F&M-3, 4, 5) FDIC Presentation of Bank and S&L Performance
9/20	Primary, Secondary and Asset-Backed Securities Markets (F&M-6,7)
	Risk and Return and Asset Pricing Models (F&M-8,9) Risk and Rates of Return -- CAPM  More CAPM Portfolio Risk and Return (EXCEL Spreadsheet) Market Efficiency and Hedge Funds Supporting Spreadsheets: DataMSFT+      Frontier Estimation MSFT+ Complete Efficient Frontier Estimation Spreadsheet
9/27	Interest Rate Determination, Bond Valuation and the Yield Curve (F&M-17,18, 19; and IMM-5, 6, 7) Bond Pricing Interest Rate Risk Implied Forward Rate Computing the Implied Forward Yield Discount Bond Price/Interest Rate Relationship Table Chart Duration Portfolios      Acheiving Target Duration Fannie, Freddie, Portfolio Duration, Immunization and Callable Bonds Duration of S&P 500 (Standard & Poors) Historical Yield Curves Yield Curve February 27, 2006   Yield Curve July 14, 2006 Sept. 21 2006 The Fed and Interest Rate Term Structure Case/Problem Set 1 Due COB Thursday, September 27, 2007
10/4	Introduction to Financial Futures, Swaps and Options Markets (F&M-10,11,12) Eurodollar Futures Contracts and Review of Futures Case/Problem Set 2 Distributed
10/11	Corporate Stock and Stock Options and Derivatives Markets (F&M-13,14,15 16)  Put-Call Parity For Stocks Options Markets  Binomial Options Pricing  Options Pricing PowerPoint Slides Arbitrage: The Key to Pricing Options FASB Stock Option Expensing -- Using the Binomial Tree Approach FASB Options Reported as an Expense -- New York Times 4/1/04 Don Chance: Volatility Smile Example Of Computing Returns and Beta
10/18	Sample Midterm     Sample Midterm (.pdf) MIDTERM EXAM (Thursday, October 18, 2007)
10/25	Money Market Instruments and Treasury and Agencies Securities Markets (F&M-20; 21; IMM-1,2,3,4,5,6,7,8,9,10,11,12,13) The Treasury Market and Treasury Bill Pricing Discount Bond Price/Interest Rate Relationship Table Chart Treasury and Agency Securities    Bank Obligations (CD, Repo, Fed Funds, etc) Problem Set 3 Distributed
11/1	Interest Rate Futures, Forwards, Swaps ,Options and Customized Contracts (F&M-28, 29; IMM-14,15,16) Futures          Gas Price at the Pump Futures     CME Financial Futures Basics Fair Value Futures Calculation More on Fair Value Futures Fed Funds Futures CBOT    Eurodollar Futures Contracts and Review of Futures Financial Futures Markets    Pricing of Futures   Applications  Swaps, Caps Floors Interest Rate Swaps     Forward Rate Agreements and Swaps Swap Example (Excel) Interest Rates 1994 Using Interest Rate Swaps: Jefferson County, AL CBOT_Simple Treasury Long Hedge CBOT_Simple Treasury Duration Adjustment
11/8	Corporate Senior Securities and the Municipal Securities Markets (F&M-22,23,24) Going Private: Private Equity Funds and HCA Buyout July 25, 2006
11/15	Mortgage Markets and Instruments (F&M-,25,26,27) Mortgage Market   Mortgage-Backed Securities  MBS Lecture Notes Commercial Real Estate (11/23/04)     Bloomberg Screens of CMO Pricing See InvestinginBonds.com for More Information On CMOs CMOs and Interest Rate and Operational Risk Commercial Paper Caper Case/Problem Set 2 Due Thursday, November 15, 2007
11/22	Thanksgiving Recess NO CLASS
11/29	Mortgage Market Instruments - II (F&M-25,26,27) Asset-Backed Securities         Credit Derivatives and the CDS Market Emerging Market CDS Market     Lehman Default Swaps Explained JPM_Intro_to_Credit_Derivatives CDO Market Tumbles on Subprime Slide_Bloomberg_12_07
12/6	Balance of Payments, International Transactions and Foreign Exchange Markets (F&M-30) Interest Rate Parity and Forex Futures Market for Foreign Exchange Current Exchange Rates: Yahoo/World Markets Eurobirth   Case/Problem Set 3 Due Thursday, December 6, 2007 Sample Final Examination
12/13	Final Examination Thursday, December 13, 2007 7:30 p.m. - 10:15 p.m.

Cases and Problem Sets:

General:
i) Each case or problem set must be turned in by the due date
ii) The case or problem set must be 6-10 pages typewritten, not including charts, graphs, tables or references, with page numbers clearly indicated.
iii) One letter grade penalty for each day late, unless otherwise given permission by the professor.
iv) References are to be provided at the end of the problem sets. Wikipdia is not considered a valid reference without other supporting material.

Case or Problem Set Preparation Instructions:
A. Purpose of the case or problem: to allow the reader to determine what the author intends to do and the author's plan and strategy for completing the analysis.

B. Analysis types
1. Examination of an existing data base or combination of bases in an effort to establish some cause-and-effect relationship between the variables examined.
2. The application of a decision-theory technique or combination of techniques to a new or previously unresolved problem.
3. Development of a new data base and an analysis of the data gathered.

C. Suggested Organization of Case or Problem Set Reports and Presentations
1. Title page and Executive Summary
2. Problem Statement and nature of the problem to be addressed.
a. Background, may include a theoretical framework
b. Central question to be addressed by the research

3. Approach and methodology to address the problem as stated above
a. Methods and approach
b. Data Sources
c. Areas that will be excluded or beyond the scope of the case analysis

4. Analysis procedure and data sources
a. Models, if any, to be used and how will they be developed
b. Sources of information, how will data be obtained and the organization of the data

5. Summary and conclusion. This may also be presented in an Executive Summary.