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Unit information: Risk and Return in 2020/21

Unit name Risk and Return
Unit code EFIM10028
Credit points 20
Level of study C/4
Teaching block(s) Teaching Block 2 (weeks 13 - 24)
Unit director Dr. Allard
Open unit status Not open



Financial Markets, Institutions and Instruments

School/department School of Accounting and Finance
Faculty Faculty of Social Sciences and Law


The unit aims to:

  • Prepare the ground for the core units in asset pricing in years 2 and 3 by developing equilibrium pricing concepts.
  • Cover capital budgeting rules such as Net Present Value.
  • Close the First year of Finance studies and analyse the nature of Finance as both a business discipline and as a social science.

The unit syllabus is comprised of three sections.

1. Risk and return

This section will refer to the historical perspective on returns given in the previous term’s course and introduce a more statistical perspective. It will introduce Return definitions, their distributions and statistical properties. The concept of informational efficiency and why it is specific to Finance. Introduce the closely related concept of risk/return trade-off. Explain the equilibrium principles used in pricing (Law of one price). Finally, introduce portfolio theory and the CAPM;

2. Capital budgeting

The unit will introduce the concept of equilibrium, required rates of return and discount factors. Use stylized balance sheets to introduce the key issues in capital structure and asset pricing. Explain capital budgeting: Present Value analysis, internal Rate of Return, payback and survey evidence of their uses.

3. The nature of Finance

The unit will draw upon the institutional, historical, conceptual and evidence-based knowledge that has been acquired in the first year Finance courses to assess the Finance discipline as both a business subject and a social science (a branch of Economics). Its relationship with the related disciplines of Economics and Accounting; With other disciplines such as sociology and psychology.

Intended learning outcomes

Students will be able to:

  1. Demonstrate knowledge of key concepts and examples of financial mathematics
  2. Explain the factors influencing the investment behaviour and opportunities of investors
  3. Use theory and evidence to demonstrate an understanding of financial service activity
  4. Demonstrate an understanding of the dual nature of finance as a business discipline and a social science
  5. Critically evaluate arguments and evidence.

Teaching details

Teaching will be delivered through a combination of synchronous and asynchronous sessions including lectures, tutorials, drop-in sessions, discussion boards and other online learning opportunities

Assessment Details

This unit will be assessed by 100% exam

Reading and References


Selected chapters from either: Brealey, Myers and Allen, Principles of Corporate Finance, 2016 McGraw-Hill, 2016 or Ross, Westerfield, Jaffe, Hillier and Jordan, Corporate Finance, McGraw-Hill, 2016

Books and articles

Bernstein, Peter L. (1993), Capital Ideas: The Improbable Origins of Modern Wall Street, Simon and Schuster.

Bernstein, Peter L. (1998), Against the Gods: The Remarkable Story of Risk, Wiley

Dimson, Elroy, Paul Marsh & Mike Staunton (2002), Triumph of the Optimists. 101 Years of Global Investment Returns, Princeton University Press.

Graham, J. and Harvey, C. (2002), How do CFOs Make Capital Budgeting and Capital Structure Decisions? Journal of Applied Corporate Finance, 15: 8-23.