Finance 121 Stanford - Financial Power

Stanford’s Finance 121, also known as “Capital Markets,” is a foundational course offered by the Graduate School of Business. It provides a comprehensive introduction to the core principles that drive the world of finance, serving as a crucial building block for students pursuing careers in investment banking, asset management, corporate finance, and related fields. The course aims to equip students with a solid understanding of asset valuation, portfolio management, and market efficiency. The curriculum typically starts with a deep dive into asset pricing models. Students learn about the Capital Asset Pricing Model (CAPM) and its extensions, exploring how to determine the expected return of an asset based on its risk profile relative to the overall market. Discussions often involve analyzing the assumptions underlying these models and their limitations in real-world scenarios. The course then moves on to more sophisticated pricing models, potentially including arbitrage pricing theory (APT) and factor models. A significant portion of Finance 121 is dedicated to understanding fixed income securities. Students learn about the intricacies of bonds, including different types of bonds, yield curves, duration, and convexity. They explore the factors that influence bond prices and the strategies for managing fixed-income portfolios. This section often includes the study of term structure models and the pricing of interest rate derivatives. The course also delves into portfolio management, covering topics such as diversification, asset allocation, and performance measurement. Students learn how to construct efficient portfolios that balance risk and return, taking into account investor preferences and market conditions. The efficient frontier and the concept of mean-variance optimization are central to this part of the curriculum. They examine different investment styles, such as active vs. passive management, and discuss the challenges of achieving superior investment performance. Another key area covered in Finance 121 is market efficiency. The course explores the different forms of market efficiency (weak, semi-strong, and strong) and the evidence supporting or refuting them. Students discuss anomalies in financial markets and examine behavioral finance concepts that can explain deviations from rational investor behavior. This exploration encourages critical thinking about the limitations of traditional financial models and the role of psychology in investment decisions. Case studies and real-world examples are frequently used throughout the course to illustrate the application of theoretical concepts. Students are challenged to analyze complex financial situations and make informed investment decisions. Guest speakers from industry often share their experiences and insights, providing valuable perspectives on the practical realities of finance. The course often involves rigorous quantitative analysis, requiring students to apply statistical and econometric techniques to analyze financial data. Proficiency in spreadsheet software and statistical programming languages is often expected. Problem sets, exams, and potentially a group project form the basis of assessment, emphasizing both theoretical understanding and practical application of the concepts learned. Completion of Finance 121 provides a strong foundation for more advanced finance courses and prepares students for success in demanding roles within the financial industry.