Course Manual

Intermediate Asset Pricing

EBB084A05

Academic year 2017-2018, first semester

IMPORTANT:
 If you have decided not to participate in this course and/or to take the exami-
nation, you are kindly requested to withdraw from the course via ProgRESS
WWW as soon as possible.
 The course starts with a lecture on Thursday the 7th of September, 9 – 11 a.m.,
in room 5419.0112 (Kapteynborg). It is strongly recommended to attend this
lecture.
 There will be three tutorial groups. If you cannot attend all or most tutorials of
one of these groups (see the course schedule below), you are advised to inform
our secretary by e-mail before the 4th of September, 23.59 p.m. (Ms. G. Pol,
g.pol@rug.nl). Only if you follow this procedure, we can guarantee that you will
be placed in another tutorial group.
 Students who were enrolled for a tutorial group and team in an earlier semes-
ter are NOT allowed to enrol again. They are allowed to attend classes, but only
if there is a sufficient number of empty seats.

Introduction
Intermediate Asset Pricing (IAP) is an intermediate-level course that focuses on the field
of finance, with an emphasis of portfolio theory and asset pricing. It builds on the
knowledge obtained from the courses Asset Pricing & Capital Budgeting (BSc Economics
and Business Economics) and Financial Management BDK (BSc Bedrijfskunde). Either
course is also a recommended prior for IAP. IAP is meant for third year students of the
BSc Economics and Business Economics – track Business Economics, but it is also open
to, for example, students from other Economics and Business Economics tracks, BSc
Bedrijfskunde students and exchange students.
This document provides general information about the course, including its content, or-
ganisation and rules. Up-to-date information about the course can be found on its Nestor
site. We expect you to check this site at least twice a week. E-mails will be sent to your
student e-mail account, so please check this account regularly.

Course content
Intermediate Asset Pricing is a course about financial markets, and particularly about the
financial assets that are traded in these markets. The course first sets the scene by giv-
ing an overview of how firms can raise funds, from whom, in what forms and with whose
help. Subsequently, it elaborates on valuing financial assets. For this purpose, modern
portfolio theory, factor models and two asset pricing models (i.e. Capital Asset Pricing
Model and Arbitrage Pricing Theory) are discussed. The course also discusses the valua-
tion of derivative instruments, including financial options. A final issue will be debt in-
struments and their associated yields. Also the ways in which investors and firms can use
these debt instruments to manage interest rate risks will be covered. A central theme

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throughout the course will be the notion of tracking: i.e. the replication of one asset by
using a combination of other assets. This notion will be presented as one of the corner
stones of valuation.

Intended learning outcomes

Upon completion of the course the student is able Intended learning out-
to: comes
BSc E&BE-BE
Describe in considerable depth the players, assets, ter- A.7
minology and conventions in financial markets.
Describe and explain in considerable detail various port- A.7
folio theories as well as asset pricing models.
Use these theories and models to answer relatively com- A.7
plex questions relevant to investors.
Make a well-founded decision about whether or not to D.2
apply for a position in the field of finance or to enrol for a
master programme in this field.

Literature and supplementary materials

The textbook used for this course is:
 Hillier, D., M. Grinblatt, and S. Titman, 2012, Financial Markets and Corporate Strate-
gy, second European edition, McGraw-Hill (ISBN 139780077129422).
The supplementary materials of the course include:
 the slides used during the lectures;
 a set of training exercises;
 a mock examination.
All supplementary materials are or will be available on Nestor.

Lectures, self-study and tutorials

The course comprises six ‘study cycles’. Each cycle starts with a lecture, continues with
self-study and ends with a tutorial.
 Lectures. The lectures will start in the first course week and will last two
hours. They are meant to give an overview of the literature (see the topics in the
course programme below), and to help you studying this literature.
 Self-study. After each lecture, you are expected to study the literature yourself
before the start of the accompanying tutorial. This implies that you examine
the literature carefully, and that you try to understand this literature and to repli-
cate the examples in the book. In addition, you are expected to make the selected
training exercises and to check your answers (see Nestor).
 Tutorials. The tutorials will last two hours. In order to give you sufficient time for
self-study, each tutorial is scheduled one week later than the corresponding lec-
ture. Therefore, the first tutorial will be in the second course week. The tuto-
rials are primarily meant to practice your skills and to check whether you fully un-
derstand the literature. For this purpose, student teams will be asked to make an
exercise in class, and to discuss the solutions. Note that the questions raised in
these exercises give an indication of the way in which questions will be raised in
examinations. These tutorial exercises can therefore be regarded as training for

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 the examination. However, at the same time you must realize that the majority
of the questions raised in your examination will not be covered by the tutorial ex-
ercises. So preparing the tutorial exercises is certainly not sufficient to pass the
examination. During the tutorials, the teacher may also elaborate on a few of the
topics discussed in the lecture and ask you to reflect on these topics. Further-
more, if you have any questions about the literature or the training exercises, you
can raise them during the tutorial.
Besides the lectures and tutorials, we are planning a guest lecture. This guest lecture will
be scheduled for the last course week. Date, time and place will be announced on Nestor.

Course Programme

Week Date Form Topics Lecturer – L/T

1 36: 7 September L General introduction + ST
HGT 1 + 2
2 37: 11-15 Sept. L+T HGT 3 + 4 ST/NB

3 38: 18-22 Sept. L+T HGT 5 ST/NB

4 39: 25-29 Sept. L+T HGT 6 ST/NB

5 41: 9-13 Oct. L+T HGT 7 + 8 VC/NB

6 42: 16-20 Oct. L+T HGT 9.2 + app. 10A + VC/VC

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7 43: 23-27 Oct. L+T Guest lecture Guest speaker/VC
44: 2 November Exam

Remarks:
 The different forms are: lecture (L) and tutorial (T).
 The lecturers are: Sandra Tillema (ST), Vasiliki Chatzikonstanti (VC) and Nanne
Brunia (NB).
 HGT refers to Hillier, Grinblatt and Titman (2012).

Tutorial groups and teams

There will be three tutorial groups. Each group will be comprised of several teams of four
students each. Students must enrol for a tutorial group and team between Wednes-
day 6 September, 7.00 p.m. and Friday 8 September, 23.59 p.m. You can enrol through
Nestor. Please note that the number of students who can participate in a particular tuto-
rial group is limited. So, the earlier you are, the more choices you will have. If you fail to
enrol before the deadline, you cannot participate in IAP. Students who were enrolled for
a tutorial group and team in an earlier semester are NOT allowed to enrol again. They
are allowed to attend classes, but only if there is a sufficient number of empty seats.

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Course schedule

Class Course Day Time Place

weeks
Lecture 1, 3-7 Thursday 9-11 a.m. 5419.0112
Lecture 2 Monday 11 a.m.-1 p.m. 5419.0112
Tutorial group 1 2-7 Tuesday 9-11 a.m. 5419.0236
Tutorial group 2 2-7 Tuesday 1-3 p.m. 5419.0119
Tutorial group 3 2-7 Tuesday 3-5 p.m. 5419.0119

Attendance rules
We expect you to attend all lectures and tutorials. If – occasionally – you cannot join a
tutorial of your own tutorial group, you are allowed to switch to another group, provided
that there are a sufficient number of empty seats in this group. However, you must make
sure that your team is represented during its own tutorial by at least two members. If
you have a good reason (e.g. illness or family circumstances) not to attend a particular
lecture or tutorial, it is not required to inform the teachers or to ask for their permission.
It is sufficient to make arrangements with your team members.

Assessment
The final grade for this course will be determined by the grade on the written examina-
tion. This examination will be held on 2 November, 2017, 9 a.m. - 12 p.m. Note that ex-
am date and time are provisional; so please check the schedule generator shortly before
the examination. Subject to examination is:
 Hillier, Grinblatt and Titman, 2012, chapters 1-8, section 9.2, appendix 10A and
chapter 23 (all including the appendices);
In addition to the above-mentioned literature, also the issues discussed during the lec-
tures and tutorials are subject to examination. There are three exam opportunities per
year: at the end of block 1.1, at the end of block 2.1 and at the end of block 2.2.

More information
Please address any question regarding the course organisation, enrolment for groups and
teams, attendance, exams, grading, etc. to:
the secretary of the Department of Finance,
 Ms. Grietje Pol (DUI 836, tel. 050 - 363 3685, e-mail g.pol@rug.nl);
or (in case of more complicated questions) the course coordinator,
 Ms. Sandra Tillema (DUI 811, tel. 050 - 363 4539, e-mail s.tillema@rug.nl).

The lecturers are:

 Ms. Sandra Tillema (see the details above)
 Mr. Nanne Brunia (DUI 866, tel. 050 - 363 6388, e-mail n.brunia@rug.nl)
 Ms. Vasiliki Chatzikonstanti (DUI 756, tel. 050-363 6039, e-mail
v.chatzikonstanti@rug.nl).