Finance 303: Financial Management - Course Overview and Future Value

Financial Management (Finance 303) - Summer Session

  • Intense and fast-paced, requiring students to stay on top of the material.
  • Students often perform better in summer sessions due to the constant coverage of topics and frequent testing.

Instructor: Dr. Piloff

  • Course coordinator for Finance 303 with extensive experience.
  • Has written the class material, problems, and slides to ensure cohesiveness.
  • Implemented changes to improve student success, with positive results in past semesters.

Course Difficulty

  • The primary challenge stems from the complexity of finance itself.
  • The class is structured to support learning, with resources and TAs available.
  • Many students achieve high grades (A range) in the class.

Course Structure

  • One syllabus for both sections (A01 and A02).
    • A01: Face-to-face meetings Monday-Thursday, 10:30 AM - 12:35 PM. Breaks can be taken as needed.
    • A02: Asynchronous section with video lectures.
  • Both sections have access to the same materials and exams.
  • A01 has additional office hours and TA sessions.
  • Unified Canvas page for both sections.

Course Content

  • Approximately 65 units divided into 10 broad topics.
  • Each unit includes:
    • Slides
    • Test bank problems and solutions
    • Video lectures by Dr. Piloff
  • Schedule available in the syllabus and on Canvas, with weekly letters outlining topics and due dates.

Grading

  • Straight weighted average.
  • Tech test (1%): To ensure system compatibility.
  • Six tests: Lowest score is dropped.
    • Fifth highest test: 11% weight.
    • Top four tests: 22% weight each.
  • Grade ranges are provided in the syllabus (e.g., 69% for C, 79% for B-).

Connect and Proctorio

  • Connect is used for all graded assignments.
  • Access is built into tuition (First Day program).
  • Tests require camera and audio monitoring via Proctorio (included with Connect).
  • Tech test must be completed by Tuesday, May 27, at 11:59 PM.
  • Tech test includes easy questions to familiarize students with the testing process.

Tests and Bonus Points

  • Official score: Raw score plus bonus points.
  • Bonus points: Up to 20% of missed points can be earned back via bonus assignments.
  • Bonus assignment score multiplied by potential bonus points determines the actual bonus points awarded.

Test Administration

  • Administered through Connect with Proctorio monitoring.
  • Tests 1-5: 30-hour test window (opens at 6 PM the night before test day, closes at 11:59 PM on test day).
  • Test 6 (final): Extra day available.
  • Three attempts allowed for each test; the highest raw score counts.
  • No penalty for not using all three attempts.
  • Each attempt has a 90-minute time limit.
  • Questions are drawn from a pool and generated algorithmically, ensuring unique tests.
  • Tests are set to auto-submit at the deadline.

Make-up Exams

  • Rare if only one exam is missed, as the lowest score is dropped.
  • More common for missing two or more exams.
  • Syllabus details deductible vs. non-deductible make-ups.

Bonus Assignments

  • One bonus assignment for each test.
  • Includes every question that could appear on the exam (except for some true/false statements).
  • Administered through Connect and due at the end of the exam window.
  • Unlimited attempts allowed.
  • Each new attempt starts where the last one left off.
  • Extensions are unlikely.

Test Dates and Units Covered

  • Specific dates and units are listed in the syllabus.
  • First test day is Monday, but next week on Tuesday due to a holiday.

Available Resources

  • Class lectures emphasizing intuition and strategy.
  • TA sessions via Zoom, with schedules provided (some sections exclusive to asynchronous students).
  • Instructor office hours.
  • Videos for each unit (instructor lectures, TA recordings, GMU TV recordings).
  • Discussion board for finance questions.
  • Mason's partnership with NAC for free tutoring.
  • Practice problems (test bank problems with detailed solutions and Connect practice problems).
  • Formula and document sheet allowed during tests (must be printed).

Key to Success

  • Understanding, not memorizing, is crucial.
  • "See one, do one, teach one" methodology: observe, practice, and then teach the material.
  • Use available resources (slides, videos, solutions, discussion board, office hours, TA sessions) to clarify understanding.

Canvas Overview

  • Organized into modules.
  • Resources include:
    • Syllabus
    • Zoom link for office hours and TA sessions
    • Formula and notes document
    • Proctorio student guide
    • Textbook information
    • Discussion board
    • Weekly modules with pages for each unit (videos, PowerPoints, test bank questions and solutions)

Course Content Overview

  • Corporate Finance: Focus of the class. Concerns include:
    • Capital budgeting (long-term investments)
    • Raising funds (borrowing or issuing stock)
    • Managing financial activities (working capital management)
  • Investments: Buying and selling assets, pricing, wealth management.
  • Financial Institutions: Banks, insurance companies, financial intermediation.
  • International Finance: Finance in an international context.
  • Fintech: Financial activities using technology.

Relevance of Finance

  • Important for all majors (finance, accounting, management, marketing, etc.).
  • Helps in business contexts (e.g., marketing campaigns, understanding firm value).
  • Essential for personal finance decisions (e.g., retirement planning, loan options).

Corporations

  • The primary focus of the course due to their significant economic activity.
  • Key Characteristics:
    • Distinct legal entity with permanent existence.
    • Separation of ownership and management (potential conflicts of interest).
    • Effective corporate governance to oversee managers and align incentives.
    • Ability to raise funds via debt (bonds) or equity (stock).
    • Limited liability for owners.

Managerial Focus

  • Firm value maximization is the primary goal.
  • Ethical managers should pursue this without violating laws or ethical standards.

Future Value and Time Value of Money

  • Time Value of Money: A dollar paid or received at one time has a different value at another time.
  • Compounding: Returns on returns or interest on interest.
  • Example: Investing 100 at 6% per year.
    • Year 1: 100 \,*\, 0.06 = $6 \implies $100 + $6 = $106
    • Year 2: 106 \, *\, 0.06 = $6.36 \implies $106 + $6.36 = $112.36
    • Year 3: 112.36 \, *\, 0.06 = $6.74 \implies $112.36 + $6.74 = $119.10
  • Simple interest vs. compound interest.
    • FV = C_0 \,(1 + r)^t where:
      • FV: Future Value
      • C_0: Initial Amount
      • r: Rate
      • t: Time

Financial Calculator and TVM Function

  • A tool to solve finance problems (not a replacement for understanding).
  • Steps:
    • Identify what you want to know.
    • Identify what you know.
    • Convert the words into a timeline.
    • Determine how to use what you know to figure out what you want to know (a plan).
    • Use the financial calculator to execute the plan.
  • TVM Solver:
    • The calculator wants to view everything as a fair deal: Incoming funds = Outgoing funds
    • TVM Variables: [N, I%, PV, PMT, FV]
      • N: Number of periods.
      • I\%: Rate per period (entered as a percentage, e.g., 2.3, not 0.023).
      • PV: Present Value (cash flow at the beginning of the analysis).
      • PMT: Regular payments.
      • FV: Future Value (cash flow at time N).
  • Calculator settings P/Y and C/Y = 1
    • Sign Convention: PV, FV, and PMT; at least one should be positive and another negative. In future value:
      • PV is negative (money that we put in).
      • FV is positive (what we would have taken out after that many periods).
  • Solving for Future Value: Enter the PV, which should be negative, the periods, and rate, then you can select FV hit alpha, enter and it will calculate.
  • Example: Invest 30,000 today; you can earn 6.1\% per quarter. How much will you have in 4 quarters, using the formula 30,000 \, *\, (1 + 0.061)^4 = $38,017.43

Timelines

  • A useful visual representation of cash flows over time.
  • Elements:
    • Time Zero: The earliest point in the analysis (often today).
    • Time t: In t periods.
    • Dot Dot Dot: Passage of Time.
    • Period 1: Between time zero and time one.
    • Cash Flows: C_t (with the subscript showing when the cash flow takes place).
  • Steps:
    • Determine the length of each period (month, quarter, half-year, year).
    • Identify a rate corresponding to each period.

Additional Notes on Future Value

  • FV at Time t of an investment at Time K: FV = C_k \,(1 + r)^{(t-k)}.
    • You will invest in five years, which is going to be 12,000. In eight years from today you can get 7\% per year.
    • 12,000 \, *\, (1 + 0.07)^3 = $14,700
  • Expected Values:
    • If the cash flows are known with uncertainty, and can vary, use the expected cash flow.
    • With expected values is treat them as know.