Principles of Valuation: Risk and Return

Overview

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This second course in the specialization will last six weeks and will focus on the second main building block of financial analysis and valuation: risk. The notion of risk and statistics are intimately related and we will spend a fair amount of time on the development of some statistical concepts and tools, namely distribution theory and regression analysis. This time will be well spent because these concepts and tools are also commonly used in many applications in the real world. The foundational idea of diversification will then be used to develop a framework for evaluating risk and establishing a relationship between risk and return. Apart from developing a keen appreciation of risk for making thoughtful decisions in an institutional context, this course will contain a lot of material and examples that will enable the learner to make smart personal investing decisions. The course will again have time included for assimilation and two final exams.

This course is the second in a sequence of four courses that comprise a Specialization on Valuation & Investing.

Syllabus

Overview of Specialization & Course
This module contains detailed videos and syllabi of both the Specialization and this course. This specialization has been designed to enable you to learn and apply the powerful tools of modern finance to both personal and professional situations. The courses within progress linearly and build on each other and it is important for you to get an understanding of why this specialization may be relevant to your goals, again both personal and professional. Please review the videos and syllabi as they will give you a sense of the specialization and how this specific course fits within. The teaching style and philosophy of the instructors is also presented to you (hopefully) in sufficient detail. Most importantly, it will give you enough information for you to make a decision about whether you want to take this course, by itself or as part of a specialization.

Module 1
Risk and return is best understood in a real context; we will therefore spend the first module on understanding the most common vehicle of investment: bonds.

Module 2
This second module will be spent understanding the features and valuation of stocks.

Module 3
In this module, we will develop a theory of risk based on the intuitive concept of diversification. Since knowledge of Statistics is key to understanding risk, we will introduce some important concepts of applications.

Module 4
In this module, we will introduce one of the most widely known models called CAPM (Capital Asset Pricing Model), which provides a simple and powerful relation between risk and return.

Module 5
This week will be spent on a short wrap video of the course and time for assimilation and review by learners to be prepared to take the final exams. In the past, learners have really valued this time and hence it is built into this on-demand structure as well.

Module 6
This is finals week. Please note that there are two exams and you need to attempt both.