Global Financial Markets

3 Credits · Level: Graduate

This course begins with the building block concept of the time value of money, and quickly moves onto applying this concept to government bond valuation, Macauley and Modified duration, the shape of the yield curve, the relation between spot and forward rates of interest, and the relation between nominal and real returns. We then apply these skills to corporate bond and stock valuation with a deep dive on bond covenant provisions, the dividend discount model and the use of comparables in valuation. We next make a connection between these valuation approaches and the Markowitz efficient frontier method for constructing an optimal portfolio. The relation between the Markowitz method and the Capital Asset Pricing Model (CAPM) is our next topic followed by how to apply to CAPM for constructing an optimal portfolio and estimating a security’s expected return. We conclude with a detailed explanation of how markets work—and consequently how investors should invest—according to the efficient market hypotheses and the competing hypothesis of behavioral finance.