While the cash flows of fixed income securities are contractually specified, the valuation of bonds is particularly challenging given interest rate movements, credit risk, and embedded optionality.
Additionally, as part of an examination of structured products, the course will examine some (very) basic elements of real estate finance, particularly the process of creating and valuing residential mortgages. (Though astute observers will note that "Mortgage Banking" has been dropped from the course title.)
Further, the course acknowledges that much of the controversy regarding the 2008 Financial Crisis and many other crises in general shared the use of leverage. Given the fact that the use of debt can be precarious, we will take a deep dive into financial crises and examine the underlying issues regarding overusage of leverage.
The class, by its nature, requires a moderate level of quantitative skill, but more importantly it will require consistent focus. In the end, we want you to not just know about interest rates, creditworthiness, bonds, and bond markets, but we want you to know what these things mean and how you can use the information. Prerequisite FIN 702, Investment Analysis