1. Major Field Meeting Finance Department Fall 2005

2. Agenda

Two Branches of Finance

• Capital Markets / Investments

• Corporate Finance

• Careers Within Each Branch

[email_address]

• Finance I

• Finance Major

• Analytical Finance Major

Classes

3. Capital Markets/Investments

Perspective: The investors portfolio

Key issues:

• Expected rates of return

• • Beta and the Capital Asset Pricing Model

• • Multi-factor models

• Measuring risk

• • Variances and covariances

• • Short-run risk, long-run risk

• Security Pricing (stock, bonds, derivatives)

4. Corporate Finance

Perspective: The firm

Which projects to pick?

• Capital Budgeting: Valuing investment projects

• Net present value, real options

How to finance them?

• Capital structure: Debt versus equity

• Risk Management

What to do with the profits?

• Dividend policy: Dividends/share repurchases/retained earnings

5. Careers

Capital Markets

Money Management (buy side)

• Pension funds

• Mutual funds

• Hedge funds

Research, Sales and Trading (sell side)

• Security analysis

• Design securities to manage risks

• Market making

Corporate Finance

Management

• Finance Department

• General Management

Investment/commercial banking

• Raising Capital

• Mergers and Acquisitions

• Corporate Clients

Consulting

• Strategic

• Valuation

• Managerial performance evaluation/compensation

FINANCE WEB SITE LISTS COURSE RECOMMENDATIONS BY CAREER 6.

Use the Alumni Network to find Kellogg grads:

http://kelloggalumni.northwestern.edu/Directory/

BasicSearch.asp

160 at Merrill Lynch

118 at Morgan Stanley

94 at Lehman Brothers

73 at Citigroup

63 at Goldman, Sachs & Co.

59 at JP Morgan Chase

45 at HSBC

38 at Deutsche Bank

7. Finance:Our Market Share at Kellogg

19% of Graduates last year took jobs in finance

26% of Interns last year took jobs in finance

Finance is one of the most popular majors at Kellogg (about tied with marketing and management and strategy).

And, were growing!

8. Finance @ Kellogg 9. Finance I (FINC430)

Which projects to pick?

• Optimal investment decisions by firms

• What cash flows does the project generate?

• How to adjust for timing and uncertainty of cash flows?

Also a lot of useful techniques applicable to personal finance

We deal first with time...

• basic discounting techniques, application to stock and bond valuation

• capital budgeting under certainty

...then with uncertainty:

• asset pricing models

• capital budgeting under uncertainty

• market efficiency

10. Major Requirements

Finance Major

Analytical Finance Major

Both majors build on knowledge from FINC 430 (FIN I) and FINC 441 (FIN II)

11. Finance II (FINC 441) The role of thefinancialmanager Fin I: Valuations and investmentdecisions Fin II: Dividenddecisions Fin II: Financingdecisions Fin II: RiskManagementand Hedging Return rate should beappropriate Cash flowsappropriatelycomputed How much? What form? Identifycosts andbenefits of eachfinancinginstrument Choose theoptimal mix Identify whichrisks should be hedged Findthe appropriateinstruments 12. Options for First Years

Option 1: Take Required Classes

• Finance I and Finance II

• or Finance I/II (Turbo) (combines Fin I and Fin II in one class)

Option 2:

• Waive Finance I. Take Finance II.

Option 3:

• Waive Finance I and Finance II

13. Finance Major

Finance I &Finance II(or FIN 440 (Turbo))

One capital market course from list F

2 additional courses

14. Analytical Finance Major

Finance I &Finance II (or FIN 440 (Turbo))

3 courses from List A

Derivative Markets I

Practicum

15. Classes

Capital Markets

• Derivative Markets IF (A)

• Derivative Markets IIF A

• InvestmentsF A

• Fixed Income SecuritiesF A

• International FinanceF

• Money Markets & the FedF

• Emerging Markets

• Securitization

Corporate Finance

• Financial DecisionsA

• Fin. Strategy & TaxesA

• Entrepreneurial Finance

• Venture Capital and Private Equity Investing

• Real Options

• Investment Banking

• Corporate Restructuring

• Mergers and Acquisitions

• Security Analysis

• Case Studies in Venture Investment and Management

NOTE 1:You can target your courses to your career plans NOTE 2: It is not all math! Many courses use cases and analytical frameworks. 16. Practicum in Analytical Finance FINC-925

The focus of the course this year will be Value Investing.

First half: (a) formal lectures, (b) in class valuation discussions, (c) presentations by leading value investors.

Second half: Students will (i) design strategies for efficiently searching for value investing strategies, and (ii) identify an interesting value investing opportunity, in groups.

The course uses large data bases of returns data. You will learn to use STATA to analyze strategies.

Each group will make a final presentation on (i) and (ii).A couple of leading value investors to be present during the final presentation.

http://www.kellogg.northwestern.edu/faculty/jagannathan/ teaching/practicum/2005/index.htm

17. New Courses This Year

Investment Banking (Stowell, Winter 2006)

• Focus on securities industry, Wall Street, LBO funds and hedge funds, various functions of I-banking

• Sarbanes Oxley and the regulatory environment, exchanges

• M&A strategies, valuation and defense

• Corporate financing: IPOs, SEOs, debt and convertibles

Cases in Venture Investment and Management (Hochberg, Winter 2006)

• Focus on evaluating early stage business opportunities and assessing VC investments

• Learn how to make decisions in uncertain environments

• Based on a series of cases

• Will revolve around in-class case analysis with the venture capitalists and entrepreneurs involved in the cases

• 5/5 ratings when taught at Cornell

18. More Information: Finance Department Web Page http://www.kellogg.northwestern.edu/finance/index.htm

Course recommendations by career

Course offerings, descriptions

Some course page links (see also Professors own web pages for links)

Professors

• • Email addresses

• • Biographical information

• • Research interests

19. Questions ? 20. Financial Decisions FINC-442

Usescase studiesto enhance the student's understanding of managerial financial decision making, specifically investment and financing decisions.

Topicsinclude short- and long-term financing, capital structure and dividend decisions, cost of capital, capital budgeting, firm valuation, financial and operational restructuring, and mergers and acquisitions .

The course issufficiently general so as to be of interest to all students.It provides students with the opportunity to apply the concepts and theories developed in other finance courses.

At its most fundamental level, the course attempts to improve problem-solving skills:problem definition, gathering and organizing the relevant information, developing feasible alternative courses of action, evaluating alternative choices, and recommending and defending the best course of action.

21. Entrepreneurial Finance FINC-446

This course teaches studentshow to become an entrepreneur by focusing on financial aspects.

Topics includepro forma development and review, business valuation models, cash flow analysis and raising capital from private investors, venture capitalists and banks.

The course is taught using thecase methodprocess ("real life" case studies). Periodically, technical notes will be used and guests invited to augment subjects addressed. This is not a quantitative analysis course. Rather, it focuses on marketing, sales, management and strategic planning.

22. Venture Capital and Private Equity Investing FINC-445

This course teaches students aboutthe venture capital and private equity industry from the primary perspective of the investor.

Topics include the structure of VC funds, the contracts between VCs and their investors, the contracts between VCs and entrepreneurs, valuation of deals, monitoring of investments, and exit strategies such as IPO / M&A

The course is taught using a combination of lectures, class discussions, and thecase methodprocess ("real life" case studies). Periodically, technical notes will be used and guests invited to augment subjects addressed. This is not a quantitative analysis course, though frameworks for thinking about valuation are provided.

23. International Finance INTL-470

Managing an international business or one exposed to global competition requires an understanding ofinternational financial instruments, markets and institutions.This course seeks to provide students with a working knowledge of these issues.

Topics include the nature offoreign exchange risk;the determination ofexchange rates and interest rates ; the management of foreign exchange risk with forwards, options and swaps; exchange rate forecasting; the anatomy ofcurrency speculative attacks ; and the dynamics of the balance of payments with a focus on understandinginternational capital flows, country debt and exchange rate fluctuations.

24. Investments FINC-460

This course is a comprehensive study ofinvestment theory from the perspective of plan sponsors and portfolio managers.

Emphasis is onoptimal portfolio construction and portfolio performance evaluationusing modern portfolio theory and asset-pricing models.

Topics includeequity valuation ,benchmark tracking ,transactions costs ,term structureof interest rates and bonds,use of derivativesin index fund management and hedge fund strategies.

25. Money Markets and the FedFINC-451

This course covers two aspects ofmoney markets : financialinstitutions , and financialinstruments .

In the first half of the course, thelinkages between the financial system and the macro-economyare studied includinginterest rate determination, the role of the Federal Reserveand the conduct of monetary policy.

The second half of the course provides an overview of the instruments of the money market:Federal Funds, Commercial Paper, Treasury Bills, etc.Basic valuation and hedging techniques in short term futures and swaps are also covered.

26. Derivatives Markets I, FINC-465

This course covers theuse and pricing of forwards and futures, swaps and options.

Specific topics includestrategies for speculation and risk management , no-arbitrage pricing for forward contracts, the binomial and Black-Scholes option pricing models and applications of pricing models in other contexts.