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Appendix-77 (1) - 24-25

Sllybus of the Delhi University

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41 views2 pages

Appendix-77 (1) - 24-25

Sllybus of the Delhi University

Uploaded by

monal.iisa.ghosh
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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EC (1267) - 25.08.

2023

FINANCIAL MODELING WITH EXCEL


CREDIT DISTRIBUTION, ELIGIBILITY AND PRE-REQUISITES OF THE COURSE
Course title Credits Credit distribution of the course Eligibility Pre-
& Code criteria requisite
Lecture Tutorial Practical/ of the
course
Practice
(if any)
Financial 2 0 0 2 Class XII NIL
Modeling
with Excel

Learning Objec�ves: The objec�ve of this course is to:


• Build financial models using Excel func�ons to solve some real-life financial problems.
• Acquire prac�cal skills and knowledge that are useful for investment banking.

Learning Outcomes: A�er comple�on of the course the learner will be able to:
• Compute present value and future value of a cashflow or annuity.
• Create loans and amor�za�on tables, and find price, yield, and dura�on of a bond.
• Draw op�on payoff diagrams and op�on strategy diagrams.
• Find op�on price using Black-Scholes, and binomial models.

UNIT-I: Time Value of Money (28 hours)


Building good financial models, Interest rates, Future value, Present value, Annuity,
Perpetuity, Present value of an annuity, Present value of a perpetuity, Present value of non-
annuity cash flows; Net present value (NPV), Internal rate of return (IRR), NPV vs IRR; Loans
and amor�za�on tables, Interest-only loan, An equal amor�za�on term loan, Mortgage;
Effec�ve interest rates, Cost of a mortgage, Con�nuous compounding and discoun�ng.

UNIT-II: Bond Pricing and Duration (12 hours)


Characteris�cs of bonds, Zero-coupon bond, Bond valua�on, Yield to maturity, Yield curve
and forward rates; Macaulay dura�on, Modified dura�on, and convexity.

UNIT-III: Options, Black-Scholes, and Binomial Models (20 hours)


Call and put op�ons, Op�on strategies, Put-call parity, Black-Scholes formulae for prices of
call and put op�ons; Binomial op�on pricing model, and two-period binomial model.
Essential Readings
1. Benninga, Simon & Mofkadi, Tal (2018). Principles of Finance with Excel (3rd ed.).
Oxford University Press, New York.
2. Sengupta, Chandan (2004). Financial Modeling using Excel and VBA. John Wiley.

Suggested Readings
• Day, Alastair L. (2015). Mastering Financial Mathema�cs in Microso� Excel (3rd ed.).
Pearson Educa�on Ltd.
• Luenberger, David G. (2014). Investment Science (2nd ed.). Oxford University Press.

23
EC (1267) - 25.08.2023

Prac�cal Exercises: Review of Excel spreadsheets concepts including func�ons and graphs
from [1]: Part Five Excel Skills. Prac�cal work to be performed using Excel spreadsheets for
the modeling of the following type of problems:
1. Calcula�ng future value, present value, and present value of an annuity. Use of Excel
func�ons FV, PV, NPV, and PMT. [1]: Chapter 2, Exercises 1,3,5, and 7 pages 46-47.
2. Calcula�ng net-present value (NPV) and internal rate of return (IRR). NPV vs IRR. Use
of Excel func�ons NPV and IRR. [1]: Chapter 3, Exercises 1 to 3 pages 99-100.
3. Crea�ng loan and amor�za�on table. Use of Excel func�ons IPMT and PPMT.
[1]: Chapter 4, Exercises 1 to 3 pages 132-133.
4. Compu�ng effec�ve annual interest rate (EAIR), using func�on IRR, and XIRR (for dates,
not evenly spaced). [1]: Chapter 5, Exercises 1, 4, 7, and 9 pages 169-171.
5. Calcula�ng bond price and yield to maturity (YTM) of a bond. Use of Excel func�ons
PRICE, YIELD, IRR, and XIRR (for non-periodic cash flows).
[2]: Models 2, and 3 pages 276-279.
6. Compu�ng dura�on, modified dura�on, and convexity of a bond. Use of Excel func�ons
DURATION, and MDURATION.
[2]: Models 4, and 5 pages 280-284.
7. Compu�ng payoffs of call and put op�ons, and draw profit diagrams in Excel.
[1]: Chapter 17, Exercises 1 to 4 pages 572-574.
8. Studying and comparing op�on strategies: Bear spread, Bull spread, and Buterfly
spread, and draw corresponding profit diagrams in Excel.
[1]: Chapter 17, Exercises 18, 19, and 21 pages 581-583.
9. Using Black-Scholes formulae to find prices of call and put op�ons.
[1]: Chapter 19, Exercises 1 to 4 page 626.
10. Using binomial model to find prices of call and put op�ons, and Excel tree diagram.
[1]: Chapter 20, Exercises 3 to 5 page 653.

Teaching Plan (SEC Paper: Financial Modeling with Excel)


Week 1: Excel Skills, Building good financial models.
[1]: Review of Excel basics and func�ons from Chapters 21 to 23, and Chapter 1(Sec�on 1.4).
Week 2: Interest rates, Future value. [1]: Chapter 2 (Sec�on 2.1).
Weeks 3, and 4: Present value, Annuity, Perpetuity, Present value of an annuity, Present value of a
perpetuity, Present value of non-annuity cash flows. [1]: Chapter 2 (Sec�on 2.2).
Week 5: Net present value (NPV), Internal rate of return (IRR), NPV vs IRR.[1]: Chapter 3 (3.1 to 3.3).
Week 6: Loans and amor�za�on tables, Interest-only loan, An equal amor�za�on term loan,
Mortgage. [1]: Chapter 4 (Sec�ons 4.2 to 4.5).
Week 7: Effec�ve interest rates, Cost of a mortgage, Con�nuous compounding and discoun�ng.
[1]: Chapter 5 (Sec�ons 5.1, 5.2, and 5.7).
Weeks 8 to 10: Characteris�cs of bonds, Zero-coupon bond, Bond valua�on, Yield, Yield curve and
forward rates; Macaulay dura�on, Modified dura�on, and convexity. [2]: Chapter 10.
Weeks 11 to 13: Call and put op�ons, Op�on strategies, Put-call parity.
[1]: Chapter 17, and Chapter 18 (Sec�on 18.3, and Exercises 4 to 6, page 602).
Week 14: Black-Scholes formulae for prices of call and put op�ons. [1]: Chapter 19 (Sec�on 19.1).
Week 15: Binomial op�on pricing model, Two-period binomial model. [1]: Chapter 20 (20.1 to 20.3).

24

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