Syllabus for Financial Evaluation and Strategy:

Investments
Instructor
Scott Weisbenner, Professor of Finance and James F. Towey Faculty Fellow, University of Illinois
at Urbana-Champaign

Professional information and background

Coursera profile

Course Description
In this course, we will discuss fundamental principles of trading off risk and return, portfolio
optimization, and security pricing. We will study and use risk-return models such as the Captital
Asset Pricing Model (CAPM) and multi-factor models to evaluate the performance of various
securities and portfolios. We will also establish benchmarks or hurdle rates for securities and
firms. Building upon this framework, market efficiency and its implications for patterns in stock
returns and the asset-management industry will be discussed. Finally, the course will conclude by
connecting investment finance with corporate finance by examining firm valuation techniques
such as the use of market multiples and discounted cash flow analysis. This course is the first of
two on investments that I will be offering online.

Course Goals and Key Takeaways

The over-arching goals of this course are to build an understanding of the fundamentals of
investment finance and provide an ability to implement key asset-pricing models and firmvaluation techniques in real-world situations. Specifically, upon successful completion of this
course, you will be able to:

Know the historical returns of various asset classes in the U.S.

Form a portfolio of securities and calculate the expected return and standard deviation of
that portfolio.

Graph return-volatility tradeoffs and construct optimal/efficient portfolios.

Analyze whether it makes sense to hold gold as part of a diversified portfolio.

Analyze the benefit of adding international funds to a U.S.-centric portfolio.

Understand the implications of the Separation Theorem of investments.

Understand and use the Capital Asset Pricing Module (CAPM).

Analyze regressions of stock returns.

Estimate and interpret the ALPHA () and BETA () of a security.

Know the historical performance of the CAPM and how these tests were done.

Evaluate key return anomalies like the size and value investment strategies.

Use and interpret 3-Factor Models.

Understand differences between the CAPM and 3-Factor Model.

Understand what is meant by market efficiency.

Understand what market efficiency implies for patterns in stock returns and for the assetmanagement industry.

Conduct perpetuity valuations.

Appreciate sensitivity of perpetuities to interest/discount rates and growth rates.

Understand market multiples and income approaches to valuing a firm and its stock.

Appreciate the limits in long-term forecasting of discount rates and growth rates.

Conduct specific examples of a market multiples valuation and a discounted cash flow
valuation.

Recommended Background
You are strongly recommended to have knowledge of statistics (in particular an understanding of
probability distributions, correlations, and linear regression analysis). An ability to use Microsoft
Excel is also strongly recommended, as we will use Excel in the course to conduct regression
analyses and optimize various portfolios subject to certain conditions.

Course Materials
The course is designed to be self-contained in the video lectures. I do require (or at least strongly
suggest!) two additional readings to supplement the course (they are available on JSTOR):

"The Capital Asset Pricing Model" (by Andr F. Perold), 2004, Journal of Economic
Perspectives, Vol. 18(3), p. 3-24.

"The Capital Asset Pricing Model: Theory and Evidence" (by Eugene F. Fama and
Kenneth R. French), 2004,Journal of Economic Perspectives, Vol. 18(3), p. 25-46.
The results and conclusions from various academic papers will be referenced throughout the
course (with references provided for you to investigate these papers further if you wish).
I will also provide you with several Excel spreadsheets that serve as the basis for in-lesson
exercises and assignments. We will definitely be learning by doing in this course!
Supplemental Textbook Coverage (NOT REQUIRED)
As mentioned earlier, the course is designed to be self-contained in the video lectures and has
only two additional required readings. The textbooks listed below are NOT REQUIRED (because
they cost money!), but are a source for further coverage of topics discussed in the video lessons
if you are interested. For each module, I will indicate the corresponding coverage in these
textbooks in the module's reading list. The Ivo Welch textbook is available for free online, but
please note that all material on this website is copyrighted and access is only permitted and free
to users who adhere to certain conditions (for details visit the web link below). The first two
textbooks listed below do not provide free access.

Investments (by Zvi Bodie, Alex Kane, and Alan J. Marcus), McGraw-Hill Irwin, 10th
edition, 2014.

Principles of Corporate Finance (by Richard A. Brealey, Stewart C. Myers, and Franklin
Allen), McGraw-Hill Irwin, 10th edition, 2011.

Corporate Finance (by Ivo Welch), 3rd edition, 2014.

Course Outline
The course consists of four modules, plus Course Introduction and Course Conclusion videos.

Module 1: Investments Toolkit and Portfolio Formation

Lessons:

Investments Toolkit

Historical Returns in the U.S.

Return and Risk: Intro to Portfolios

Portfolio Choice in General Settings

Description & Discussion of Assignment 1

Calculating Efficient Portfolios of Risky Assets

Description & Discussion of Assignment 2

Required Reading:

Read pages 3-15 of "The Capital Asset Pricing Model" (by Andr F. Perold),
2004, Journal of Economic Perspectives, Vol. 18(3), p. 3-24.

Module 2: Motivating, Explaining, & Implementing the Capital Asset

Pricing Model (CAPM)
Lessons:

Separation Theorem of Investments

Examples of Reducing Portfolio Risk

Capital Asset Pricing Model (CAPM)

Applications of CAPM

Evaluation of Small-Value Stock Investment Strategy, 1927-2014

Description & Discussion of Assignment 3

Required Reading:

Read pages 15-24 of "The Capital Asset Pricing Model" (by Andr F. Perold),
2004, Journal of Economic Perspectives, Vol. 18(3), p. 3-24.

Module 3: Testing the CAPM, Multifactor Models, & Market

Efficiency
Lessons:

Testing the CAPM & Market Anomalies

Multi-Factor Models and Matching

Use Domestic or Global Factors?

Return-Risk Model Used by Chief Financial Officers (CFOs)

Market Efficiency

Description & Discussion of Assignment 4

Required Reading:

"The Capital Asset Pricing Model: Theory and Evidence" (by Eugene F. Fama and
Kenneth R. French), 2004,Journal of Economic Perspectives, Vol. 18(3), p. 25-46.

Module 4: Investment Finance and Corporate Finance: Firm

Valuation
Lessons:

Perpetuity Valuation with Simple Application to S&P 500

Valuation Primer: Market & Income Approaches

Caution in Projecting Firm Discount Rates

Caution in Projecting Firm Growth Rates

Discounted Cash Flow Valuation Example: Pension Plan Liabilities

Market Multiples Valuation Example: Google at Its Initial Public Offering (IPO)

Description of Assignment 5 & Valuation of Microsoft

Required Reading:

None

Elements of This Course

The course is comprised of the following elements:

Lecture videos. I have recorded a series of videos for you to watch in each module for
each lesson. These video lectures are the heart of the course. You may stream these videos for
playback within the browser by clicking on their titles.

In-video questions and exercises. Throughout the various videos in each module, there
will be several times when I ask you to "Pause, Think, and Answer" in response to a question.
Please take advantage of this break to think about the material and formulate a response before
advancing ahead in the video to hear my answer. Also, we will conduct several in-lesson
exercises and statistical analyses using the Excel spreadsheets I have provided. I am a strong
believer in learning by doing, so we will be working together on several exercises throughout the
course.

Assignments. There will be five assignments in the course (one for each module, with
the exception of Module 1, which has two assignments). These assignments provide practice
implementing concepts discussed during the video lessons. Many of these assignments will use
Excel spreadsheets that I will provide to you. You will complete each assignment on your own.
After completing your assignment, you may review my discussion of it, and then submit it. For
the first four assignments, you will submit your assignment to be reviewed by one peer and you
will be required to review the work of at least two peers. For the fifth and last assignment, you
will submit your assignment to be reviewed by two peers and you will be required to review the
work of three peers. Please view my discussion of the assignment before reviewing the work of
your peers. You must earn 80% of the points on each of the first four assignments and at least
70% of the points on the fifth assignment to pass the course.

Quizzes. Each module has a Module Quiz. The Module Quiz is meant to test your
knowledge of the basic concepts covered in that module. You will need to score 80% or above
on each Module Quiz to pass the course. You may attempt each Module Quiz multiple times if
you do not score 80% or above on your first attempt. Indeed, you can take each Module Quiz
two times every four hours if need be (but hopefully this is not necessary!).

Readings. There are required readings for the first three modules. I have also provided,
in the reading list for each module, sources for further coverage of topics discussed in the video
lessons if you are interested (but of the three finance textbooks, only the Ivo Welch textbook
provides free access subject to certain conditions).

Discussion forums. Posting in the forums is optional, but you are encouraged to do so.
Just no commenting on my weight or choice of ties during the video lessons!

How to Pass This Course and Qualify for a Course Certificate

To qualify for a Course Certificate, simply start verifying your coursework at the beginning of the
course (with no upfront charges), and pay the $79 Course Certificate registration fee any time
before you complete the course. Thus, you can delay payment until youre confident youll pass!
Coursera Financial Aid is available to offset the registration cost for students with demonstrated
economic needs. If you have questions about Course Certificates,please see the help topics
here.
To pass this course and qualify for a Course Certificate you must:

Score 80% or above on each Module Quiz.

Earn 80% or above on each of the first four assignments and earn 70% or above on
the fifth assignment.

Review the assignments of at least two peers for each of the first four assignments
and three peers for the fifth assignment.

Besides being a stand-alone course, this course is also part of the Improving Business
Finances and Operations Specialization offered by the University of Illinois at UrbanaChampaign. By earning a Course Certificate in this course, you are on your way toward
completing this Specialization! This course will also be part of the iMBA program offered by the
University of Illinois at Urbana-Champaign and is eligible to be taken for University of Illinois
credit (subject to enrolling in the "high-engagement" version of this course).
Note: If you choose not to verify your work, you can still participate in the complete course for
free, so welcome aboard!

Getting and Giving Help

You can get/give help via the following means:

Use the Learner Help Center to find information regarding specific technical problems.
For example, technical problems would include error messages, difficulty submitting
assignments, or problems with video playback. If you cannot find an answer in the
documentation, you can also report your problem to the Coursera staff by clicking on
the Contact Us! link available on each topic's page within the Learner Help Center.

Use the Content Issues forum to report errors in lecture video content, assignment
questions and answers, assignment grading, text and links on course pages, or the content of
other course materials. University of Illinois staff and community TAs will monitor this forum and
respond to issues.
Note: Due to the large number of students enrolled in this course (hopefully!), I am not able to
answer emails sent directly to my account. Rather, all questions should be reported as described
above. Thanks!

Caveat for the Course

I have been teaching courses to students in a brick-and-mortar setting since 2001 (yikes am I
getting that old?!?). However, teaching a massive open online course (MOOC) is a new
experience for me (at least as of the summer/fall of 2015). Therefore, this syllabus is subject to
change as I learn more about teaching in this exciting and new environment. I sincerely
appreciate your input about the course and ask that you have patience if any adjustments to the
course need to be made.
You may also download a PDF version of the Syllabus.