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Foundations of Modern Finance I

Leonid Kogan, Jiang Wang, and Egor Matveyev

This is a two-part course, and part of the MicroMasters® Program in Finance. It provides a rigorous and comprehensive introduction to the fundamentals of modern finance and their applications to business challenges in valuation, investments, and corporate financial decisions under a unified framework.

Completing this first course and program will help you prepare for a career as a financial analyst, financial advisor, vice president for finance, chief financial officer, and more.

Finance provides a core function in any productive economy by providing a mechanism for savings, investment, and liquidity. Whether the learner is in a industrialized country or a developing country, financial services are essential for smooth functioning of the economy.

What you'll learn

Valuation of fixed income securities and common stocks
Risk analysis, the Arbitrage Pricing Theory (APT), and the Efficient Market Hypothesis
Introduction to corporate finance and capital budgeting
Valuation of derivative securities
Portfolio theory and the Capital Asset Pricing Model (CAPM)
Corporate financial decisions
- Real options, capital structure, payout policy, corporate bonds; and
- Interaction between investment and financing decisions

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What's inside

Learning objectives

Valuation of fixed income securities and common stocks
Risk analysis, the arbitrage pricing theory (apt), and the efficient market hypothesis
Introduction to corporate finance and capital budgeting
Valuation of derivative securities

Portfolio theory and the capital asset pricing model (capm)
Corporate financial decisions
Real options, capital structure, payout policy, corporate bonds; and
Interaction between investment and financing decisions

Valuation of fixed income securities and common stocks
Risk analysis, the arbitrage pricing theory (apt), and the efficient market hypothesis
Introduction to corporate finance and capital budgeting
Valuation of derivative securities
Portfolio theory and the capital asset pricing model (capm)
Corporate financial decisions
Real options, capital structure, payout policy, corporate bonds; and
Interaction between investment and financing decisions

Syllabus

Introduction to Finance

Financial decisions of households and corporations

Approaches to valuing financial and real assets

The role and the overview of financial markets

Financial Frictions

Unifying principles of finance

Market Prices and Present Value

State-space model for time and risk

Security prices, state prices and arbitrage pricing

Present Value (PV) and future value

Discount rates, time value and risk premium: a historic perspective

Compound interest

Annuity and perpetuity formulas

Fixed Income Securities

Fixed-income markets

Term structure of interest rates

Properties of bond prices and market conventions

Inflation and real rates

Common Stocks

Discounted Cash Flow (DCF) model

Gordon model, multi-stage growth model

EPS, P/E, PVGO

Risk

Decision under uncertainty and expected utility theory

Risk aversion

Diversification and portfolio analytics

Systematic and idiosyncratic risks

Factor models and Arbitrage Pricing Theory (APT)

Factor models for risk

APT

Applications of APT

Market Efficiency

Efficient Market Hypothesis (EMH)

Implications of EMH

Empirical evidence on EMH

Introduction to Corporate Finance

Corporate financial decisions

Opportunity cost of capital and NPV

Financial objective of corporate managers

Capital Budgeting

NPV rules

Cash flow calculations

Alternatives to NPV

Project interactions

Capital budgeting and discount rates

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

Suitable for serious business students, financial professionals, and aspiring finance experts

Real-world financial applications, preparing for professional roles and challenges

Strong theoretical foundation and practical relevance, equipping learners for success in various finance-related careers

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Reviews summary

Modern finance, difficult but useful

According to learners, Foundations of Modern Finance I can be a difficult course but also a useful one. Students describe the content as modern and challenging, especially the weekly assignments. However, there is some concern that the final exam is difficult and may not reflect what learners are learning in the course.

Course content is modern and applicable.

"It was so integrated and equipped with modern tools which can be applied in Industry and academia."

"Instructor delivery approach was modern and chalked out with modern techniques."

The material can be challenging.

"It is a Master level at MIT."

"If you are an average person and/or have little background, you will learn but you will suffer and fail the class."

The final exam is difficult and time-constrained.

"You have 1 exam that's worth 90% of your grade."

"The exam is time-constraint and very difficult."

"You are only allowed a blank excel sheet, basic on-screen calculator, and blank paper (NO physical calculator)."

Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in Foundations of Modern Finance I with these activities:

Review Financial Accounting

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Brush up on your accounting knowledge to enhance your understanding of finance concepts

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Review your class notes
Complete practice problems
Take a practice quiz

Review Fixed Income Securities

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Refresh your knowledge of fixed income securities to strengthen your foundation for understanding valuation techniques covered in the course.

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Review the types of fixed income securities
Calculate present value and future value of fixed income securities
Analyze the relationship between interest rates and bond prices

Principles of Corporate Finance

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Read this reference text to strengthen foundational understanding

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Acquire the book
Read the chapters
Complete practice problems

Six other activities

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Show all nine activities

CFA Exam Preparation

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Challenge yourself with these drills to reinforce concepts

Browse courses on Corporate Finance

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Acquire practice exam materials
Set aside study time
Practice solving problems
Review solutions

Learn Corporate Finance with Coursera

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Follow these well-structured tutorials to learn key concepts

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Create a Coursera account
Enroll in the Corporate Finance course
Watch the video lectures
Complete the assignments

Form a Study Group

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Join a study group to engage with peers and clarify concepts

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Find like-minded peers
Set regular meeting times
Review course materials
Discuss concepts

MIT Corporate Finance

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Attend this in-person workshop to engage with peers and instructors.

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Register for attendance
Travel to the venue
Attend the sessions
Network with attendees

Develop a Financial Model

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Create a financial model to demonstrate your understanding and gain practical experience

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Identify the purpose and scope
Gather data
Develop assumptions
Build the model
Test and validate

Case Competition

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Participate in a contest to showcase your skills and gain recognition

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Form a team
Research the case
Develop a solution
Present your solution

Career center

Learners who complete Foundations of Modern Finance I will develop knowledge and skills that may be useful to these careers:

Financial Analyst

Financial Analysts provide data-driven insights and recommendations to help businesses make informed financial decisions. This course helps build a foundation in advanced financial analysis techniques, such as the Arbitrage Pricing Theory (APT) and the Capital Asset Pricing Model (CAPM), enabling learners to make better investment decisions and provide tailored financial advice.

See salaries and explore the career path for Financial Analyst

Quantitative Analyst

Quantitative Analysts use mathematical and statistical models to analyze financial data and make investment recommendations. This course helps build a foundation in financial modeling and risk analysis, providing learners with the skills to develop and implement quantitative investment strategies.

See salaries and explore the career path for Quantitative Analyst

Investment Fund Manager

Investment Fund Managers oversee investment funds, making decisions on which assets to invest in and managing the overall portfolio's performance. This course helps build a foundation in portfolio theory, risk management, and investment analysis, providing learners with the knowledge and skills to manage investment funds.

See salaries and explore the career path for Investment Fund Manager

Corporate Finance Associate

Corporate Finance Associates assist in the financial management of corporations, working on projects related to capital budgeting, mergers and acquisitions, and financial planning. This course helps build a foundation in corporate finance principles and practices, providing learners with the knowledge and skills to succeed as Corporate Finance Associates.

See salaries and explore the career path for Corporate Finance Associate

Investment Banker

Investment Bankers provide financial guidance and services to corporations and governments, including advising on mergers, acquisitions, and other financial transactions. This course helps build a foundation in valuation techniques and corporate financial decision-making, which are essential in evaluating and executing complex financial transactions.

See salaries and explore the career path for Investment Banker

Risk Manager

Risk Managers identify, assess, and mitigate potential financial risks faced by organizations. This course may be useful for aspiring Risk Managers, providing them with a solid understanding of financial risk analysis techniques and the theoretical framework behind risk management strategies.

See salaries and explore the career path for Risk Manager

Credit Analyst

Credit Analysts assess the creditworthiness of individuals or organizations, evaluating their ability to repay debts. This course may be useful for aspiring Credit Analysts, as it provides a foundation in financial risk analysis and modeling, enabling them to make informed judgments on loan applications.

See salaries and explore the career path for Credit Analyst

Portfolio Manager

Portfolio Managers oversee investment portfolios, making decisions on the types and amounts of assets to buy and sell with the goal of meeting specific investment objectives. This course may be useful for aspiring Portfolio Managers, providing them with a comprehensive understanding of portfolio theory, risk management, and investment strategies.

See salaries and explore the career path for Portfolio Manager

Trader

Traders buy and sell financial instruments in financial markets, aiming to generate profits from price fluctuations. This course may be useful for aspiring Traders, as it provides a foundation in financial valuation and risk management, which are crucial for making informed trading decisions.

See salaries and explore the career path for Trader

Corporate Development Analyst

Corporate Development Analysts evaluate and execute strategic initiatives for corporations, including mergers, acquisitions, and joint ventures. This course helps build a foundation in corporate finance and valuation, providing learners with the skills to analyze and participate in strategic financial decisions.

See salaries and explore the career path for Corporate Development Analyst

Actuary

Actuaries use mathematical and statistical methods to assess and manage financial risks in areas such as insurance, finance, and healthcare. This course may be useful for aspiring Actuaries, as it provides a solid foundation in financial risk analysis and modeling.

See salaries and explore the career path for Actuary

Financial Manager

Financial Managers are responsible for the financial health of an organization by tracking cash flow, analyzing financial data, and making investment decisions. This course may be useful for learners who wish to pursue careers in financial management, providing them with a foundation to assess financial risk, manage cash flow, and make prudent investment decisions based on advanced financial techniques and theories.

See salaries and explore the career path for Financial Manager

Business Consultant

Business Consultants advise organizations on business strategy, operations, and finance. This course may be useful for aspiring Business Consultants, as it provides a foundation in financial management and analysis, enabling them to provide data-driven insights and recommendations to businesses.

See salaries and explore the career path for Business Consultant

Financial Planner

Financial Planners help individuals and families manage their finances, providing advice on investments, retirement planning, and estate planning. This course may be useful for aspiring Financial Planners, as it covers personal financial management principles and will help them develop the skills to provide sound financial guidance to clients.

See salaries and explore the career path for Financial Planner

Auditor

Auditors examine and assess financial records to ensure their accuracy and compliance with regulations. This course helps build a foundation in accounting principles and auditing standards, providing learners with the skills to identify and address financial irregularities.

See salaries and explore the career path for Auditor

Reading list

We've selected 15 books that we think will supplement your learning. Use these to develop background knowledge, enrich your coursework, and gain a deeper understanding of the topics covered in Foundations of Modern Finance I.

Fundamentals of Corporate Finance

Save

Widely-used textbook on corporate finance and provides a comprehensive overview of the subject, including foundational concepts in capital budgeting, capital structure, and payout policy. It valuable resource for understanding the theoretical underpinnings of corporate financial decisions discussed in the course.

Fundamentals of Corporate Finance with Connect with...

Product Bundle

$$$$

Essentials of Excel VBA, Python, and R

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Provides a rigorous treatment of modern portfolio theory, including the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). It valuable resource for understanding the theoretical foundations of portfolio management discussed in the course.

Essentials of Excel VBA, Python, and R: Volume II:...

Hardcover

$$$

Essentials of Excel VBA, Python, and R

Hardcover

$$$$

Fixed Income Securities

Save

Provides a comprehensive overview of fixed income securities, including their valuation, risk, and return characteristics. It valuable resource for understanding the concepts of fixed income analysis discussed in the course.

Fixed Income Securities: Tools for Today's Markets...

Hardcover

$$$

Fixed Income Securities: Tools for Today's Markets,...

Paperback

$$$