This course covers the foundations of finance with an emphasis on applications that are vital for corporate managers. We will discuss many of the major financial decisions made by corporate managers, both within the firm and in their interactions with investors. Essential in most of these decisions is the process of valuation, which will be an important emphasis of the course. Topics include criteria for making investment decisions, valuation of financial assets and liabilities, relationships between risk and return, capital structure choice, the use and valuation of derivative securities (e.g., options and convertible securities), and risk management.nnNo previous background in finance is required or expected, but in comparison with Finance 201, less time will be spent in class on the steps involved in solving basic problems. Therefore, students choosing this course should be relatively comfortable with basic mathematical operations (e.g., expressions involving multiplication of multiple terms, summation of multiple terms, etc.), though familiarity with the underlying finance concepts is not expected. A good diagnostic is to skim Section 4.2 "Rules for Time Travel" (pp. 98-104) in the course textbook, Corporate Finance by Berk and DeMarzo. If you are comfortable with the level of basic mathematics involved (even if the concepts are new), 204 is a good choice. If not, you should consider Finance 201.
There are many contexts in which lawyers need an understanding of finance. For example, many of the disputes that give rise to litigation center on the financial valuation of firms and the securities they issue. In addition, an understanding of firms' capital structures and the design of corporate securities is necessary in analyzing many legal issues, especially those arising in corporate transactions, executive compensation, and bankruptcy proceedings. This course is designed to provide students with a rigorous conceptual understanding of finance and to give students the analytical tools needed to make financial decisions and value financial securities. The course stresses problem solving and includes problem sets, cases, and a midterm and final examination. The course is designed to be accessible to students with a fairly limited mathematical background. In general we will not assume any knowledge of mathematics beyond high-school algebra.