This course examines the economic principles that determine the allocation of resources through time in market economies. It uses supply and demand relationships to value capital assets (or projects more generally). There is a detailed treatment of the effects of risk and taxes on capital asset prices, and the Modigliani-Miller financial policy irrelevance theorems are derived and examined in detail. The impact of modern contracting theory on our understanding of financial economics will also be discussed.
Upon successful completion, students will have the knowledge and skills to:
- be exposed to the classical finance model that underpins modern finance;
- understand how securities are priced and affected by the institutional arrangements in securities markets, including taxes and other government regulations,
- understand the role played by time, uncertainty, information and inflation in evaluating financial instruments;
- know the role played by arbitrage in finance markets and its impact on security prices;
- understand how security prices are determined in the Capital Asset Pricing Model, and the role played by the assumptions in the model;
- know the assumptions behind the the Modigliani and Miller (M-M) financial policy irrelevance theorems as basis for understanding the factors that determine the debt-equity and dividend policy choices of firms.
- understand to the role of asymmetric information in various financial markets.
- understand how contractual incompleteness can impact corporate financial decisions.
- Assessment will consist of a Final Exam, mid-semester exam(s), in-class quizzes and a project, or some combination thereof. See the course outline for details. (null) [LO null]
In response to COVID-19: Please note that Semester 2 Class Summary information (available under the classes tab) is as up to date as possible. Changes to Class Summaries not captured by this publication will be available to enrolled students via Wattle.
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Requisite and Incompatibility
You will need to contact the Research School of Economics to request a permission code to enrol in this course.
Preliminary ReadingHart, O., (1995), Firms, Contracts, and Financial Structure (Clarendon Lectures in Economics), Clarendon Press.
Jones, C.M., (2008), Financial Economics, Routledge, Oxon.
Lengwiler, Y., (2006), Microfoundations of Financial Economics: An Introduction to General Equilibrium Asset Pricing, Princeton University Press, Oxfordshire and Princeton.
Tirole, J., (2006), The Theory of Corporate Finance, Princeton University Press.
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- Student Contribution Band:
- Unit value:
- 6 units
If you are an undergraduate student and have been offered a Commonwealth supported place, your fees are set by the Australian Government for each course. At ANU 1 EFTSL is 48 units (normally 8 x 6-unit courses). You can find your student contribution amount for each course at Fees. Where there is a unit range displayed for this course, not all unit options below may be available.
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Class summaries, if available, can be accessed by clicking on the View link for the relevant class number.