Dr. P.V. Viswanath



Economics/Finance on the Web
Student Interest

  Courses / FINA 657/  


Email: pviswanath@csuchico.edu Tel: (212) 618-6518
Webpage: http://www.pviswanath.com
Blackboard: http://vista.csuchico.edu
Skype Username: pviswanath.csuchico

Textbook website (Connect) http://connect.mcgraw-hill.com/class/pviswanath_spring_2011
Office hours: Fridays 11am to noon (PST) and Mondays, 1:30 pm to 2:30 pm PST (on Skype); and by appointment (by phone or on Skype)

Course Objectives

This course will emphasize an understanding of the economic forces that influence the pricing of financial assets. This is viewed as a necessary prelude to the application of financial theory. Accordingly, understanding of the theory will be stressed and accompanied by the discussion of normative techniques such as portfolio selection, interest rate immunization and hedging.

Although the course material will cover formulas that can be applied in different business situations, a primary objective of this course will be, on the one hand, to learn the concepts behind the formulas. This second aspect is very important for a good reason: simple memorization of formulas is meaningless and is no use to most people; the reason is that in this age of computers, simple computation of formulas is increasingly automated. Rather, the added value that a human being brings to a work situation is the ability to impose structure on a unstructured situation and then to analyze the situation

When you have completed this course successfully, you will be familiar with:

  • Asset valuation: how to value assets such as stocks and bonds.
  • Risk-return models: how to price risk, i.e. how to adjust the value of an asset to take into account the riskiness of the asset.
  • Interest rates: how to interpret the term structure of interest rates; how to manage interest rate risk.
  • Portfolio Management: how to manage and evaluate portfolios.

Course Text

Investments, by Bodie, Kane and Marcus, 9rd. edition, McGraw-Hill Irwin. You can purchase different versions of the textbook at the bookstore.
  • Package -- book plus Connect Plus:
    Hard Cover: Investments, 9th Edition with Connect Plus by Bodie, Kane and Marcus ( ISBN: 9780077477561) Net Price: $ 161.75 
    Loose Leaf: Investment, 9th Edition with Connect Plus ( ISBN: 9780077971311) Net Price: $ 123.74 
  • Stand Alone (without Connect Plus):
    Hard Cover: Investments, 9th Edition ( ISBN: 9780073530703) Net Price: $ 160.50
    Loose Leaf: Investment, 9th Edition ( ISBN: 9780077470609) Net Price:  $ 112.50
  • If you buy the textbook elsewhere, you will still need to buy Connect. You can buy this directly from McGraw-Hill by going to http://connect.mcgraw-hill.com/class/pviswanath_spring_2011. This will cost $40
  • If you want the book, as well, but don't need a hard-copy version of the book, you can buy Connect Plus for $90.50 at http://connect.mcgraw-hill.com/class/pviswanath_spring_2011. Connect Plus is an online eBook integrated within the Connect learning management system. 
We will begin by discussing financial assets, financial markets, and their functions (Chap. 1). In order to get our feet wet right away, we will start with a discussion of the different kinds of securities that are traded in the financial markets (Chap. 2). We will then look at how financial markets operate (Chap. 3). Next, we will look at a special kind of financial asset that has become ubiquitous due to the very important function that it performs, viz. mutual funds (Chap. 4).

The next section of the course introduces the universal characteristics of all investments, i.e. risk and return (Chap. 5). We first learn how to allocate money to risky and riskfree investments (Chap. 6). Then, we learn how to put risky investments together in a portfolio (Chap. 7). By considering the equilibrium implications of different investors using these portfolio selection rules, we come to an understanding of the principles by which the market prices financial assets. We will look at the simplest model, the CAPM (Chap. 9). Next we will look at more complex models of asset pricing, that are better descriptors of asset prices from an empirical point of view. We must realize, however, that the only way to interpret data is to start with a baseline principle. This principle, which assumes that investors act rationally, is called the Efficient Markets Hypothesis and has been the backbone of academic finance and the data are, by and large, consistent with it (Chap. 12). However, more and more, economists are beginning to understand that investors are not always rational. (Chapters 12 and 13).

Upto this point, we have ignored the time element in asset pricing. We now look at assets whose main purpose is to facilitate the transfer of wealth over time, viz. bonds (Chap. 14). The pricing of bonds determines market interest rates, which are nothing but the price that the market pays investors for deferring consumption. Interest rate risk measures are explored, as well as means of hedging against such risk (Chap. 15). Bonds are very different from stocks in two ways -- one, they have finite maturity; and two, they are less liquid. For this reason, techniques for constructing and managing bond portfolios are quite different (Chap. 16).

The final section considers the evaluation of portfolios (Chaps. 24).

Course Requirements

Class Attendance and Participation

Please check the Blackboard Vista website on a regular basis. I will be primarily using Blackboard Vista to communicate with you.

I also require that you read the Wall Street Journal and/or the business section of the New York Times on a regular basis. Some exam questions will be based on current newspaper and magazine articles that are related to course material. Hence you should cultivate and improve your ability to read newspaper articles critically.  If you do not already subscribe to the Wall Street Journal, you can do so online from the FINA 657 website.


Assignments are a critical part of the course.  The main purpose of these assignments is to make sure that you understand the material, and to prepare you for the exams. The deadlines are indicated on the Course TimeTable; if the deadline passes, you will lose points so you are advised to do them on time. Assignments can be found on the website on the Assignments Page.

There are two kinds of assignments. First of all, assignments using the Connect system that comes with the textbook. To access these, go to the Connect website (http://connect.mcgraw-hill.com/class/pviswanath_spring_2011), register and you should be on your way. If you have bought Connect access already, you will have an access code that you will have to enter. If you have not bought Connect Access, you can buy it by going to this site. Once you are on the Connect site, you will see the assignments that I have given you. Deadlines for the assignments can be seen on the Connect site, but also on the Course Outline page. These Connect Assignments, you will do individually.

The second set of assignments should be done on a team basis. They can be seen on the Assignments Page.

Working with Teams

You should form teams consisting of 4 students as soon as possible and definitely not past the end of the first week -- deadlines will start piling up, and you will lose valuable points. If your team consists less than 4 students, I may assign you enough students to bring up your number to 4. You should also designate a team co-ordinator. The team co-ordinator is not necessarily the team leader, unless you choose him/her to be a team leader. The position is simply for convenience so that I only deal with one person per team. Most assignments, unless specifically indicated otherwise, will be team assignments and must be submitted by the team co-ordinator on behalf of the team. Give your team a name and send it to me along with the team composition.

Discussion Group Participation:

The Discussion Group is a crucial part of the course. You will be given articles to read and react to. At the bottom of the article, you will generally find some comments/questions at the bottom of the article; however, you should not treat these questions as requiring "answers" necessarily. Rather treat them as my thoughts and simply comment on the issues raised by the article or by the information contained in the article. Even if you are reacting to my thoughts, the structure of your posting should not in the form of an "answer" to my questions. I will deduct points if you ignore this requirement! Postings must be done according to the schedule indicated on the calendar.

Postings will be evaluated according to the following criteria:

  1. Originality
  2. Proper Grammar and correctness of spelling
  3. Logic of arguments
  4. Relating arguments to previous posts (the sequence of posts is supposed to represent a conversation -- not a set of unrelated posts of people talking past each other!).
  5. Relating arguments to issues brought up in the text and on the slides.

Academic Integrity

It is expected that any work that you turn in, either directly to me or that you might post is your own work. It cannot be plagiarised. In other words, you can submit somebody else's work or language or work as your own. If you quote from somebody else's work, the quoted part has to be clearly identified either by putting it between inverted commas or by putting it in a separate indented paragraph.


There will be a midterm exam and a final. Exams are closed book (unless otherwise announced), but I will allow you to bring in one 8.5" x 11" sheet of paper containing formulas only (two sides). You should not have any worked-out examples on the worksheet.

Media Articles

On my webpages, you will find recent media articles.  From time to time, I will add to this list.  There are several reasons why you should look regularly at these pages.  

  • I will be posting interesting and recent articles to this directory.  As such, it will be a useful way for you to keep abreast of topical issues (in addition to your regular perusal of the Wall Street Journal.)
  • I will pose questions on the subject matter of several of the articles.  These questions will be good preparation for the media article based questions on the exams.
  • You can draw on the articles for classroom discussions.
  • These articles and the appended questions are useful preparation for job interviews.

The password, necessary to access the Media Articles section will be posted on Blackboard. In case of emergency, you can contact me for the password.

Navigation Guidance

Since this is an online class, we're not going to meet in a physical location, for the most part. So where is this class taking place? In virtual space, of course. And where in virtual space? Well, at several locations -- primarily, my website (http://myweb.csuchico.edu/~pviswanath) and on Blackboard Vista (http://vista.csuchico.edu). There are a few locations on my website that you should be familiar with. One, my syllabus, which you are reading. I will be updating the syllabus, as required, so if you have a question, look here first. Two, the Course Calendar.

On the Blackboard Site, there are again two locations you need to know about. One is the Home Page. On the Home Page, I will have folders marked Week 1, Week 2 etc., which will have information that will help you learn the material. In addition to this material, you should also be reading your textbook chapters week by week.

The second area on Blackboard is the Discussion Board. You should do your reading as early as possible in the week. I will be expecting you to start posting by the Monday of the week (assuming our week starts on Friday).


The final grade will be determined as follows:

Factor  Impact on grade
Midterm 25%
Final 30%
Connect Homework 15%
Blackboard Discussion Group 15%
Assignments 15%

Letter grades will be assigned as follows: 

Course Grade Quantitative Class Score
A, A- 90%-100%
B+, B, 80%-89.99%
B-, C+ 70%-79.99%
C 60-69.99%
F 0-59.99%

Note that the minimum and maximum quantitative scores for plus and minus refinements to the letter grades will be at my discretion. These will be partly determined by the distribution of student scores within each letter grade category.   I place a high value on effort; at my discretion, I will raise your grade one notch if I feel that you have tried hard to satisfy all the requirements of the course. Finally, I may change the weight of the different factors on your grade, as I may deem necessary.


I expect all students enrolled in FINA 657 to have the following prerequisites:

  1. Ability to manipulate equations
  2. Knowledge of basic financial mathematics
  3. A solid grounding in Time Value of Money
  4. Familiarity with Excel
  5. English composition: An ability to write a report using basic principles of English grammar and composition