LSE Masters in Finance (full-time and part-time) Part 2: Year 1

Back in June, I wrote Part 1 of this post where I provided some introductory information regarding the course. Part 2 will focus more on the contents of the course along with some feedback regarding the difficulty and some tips for students who are currently enrolled.

Below is the year 1 structure for the part-time course.


(SOURCE)

Orientation
Before starting the core courses, you will have the pre-sessional part in September which consists of a few introductory weeks aimed at getting you up to speed with a lot of the basic (and not so basic) concepts that the core modules build upon. In addition to going through some basic accounting materials (indispensable for the corporate finance module), the classes will also cover some of the mathematical concepts that are required in the Asset Markets module.

When I took the course, I recall that the maths portion started with some basic statistics, differentiation and integration all the way to a bit of stochastic calculus, mainly applications of Ito’s lemma on SDEs. The Asset Markets module builds on this concept with the aim of getting students to understand how to derive the Black Scholes PDE.

There’s only a limited amount that can be covered in three weeks so most of the topics are treated more as a refresher; this is why in the entry requirements you will see that they explicitly mention that the mathematics used in the programme includes basic calculus and statistics and that applicants are required to have studied A level mathematics. Personally, I was comfortable with the level of maths that was being covered and I was enrolled for the CFA exam so I could keep up with the lectures. Just to give you an idea, if the below concepts are new to you, you might struggle.

Accounting
– basic accounting statements: balance sheet, income statement, etc.
– basic financial terms

Quantitative Methods
– integrating and differentiating functions
– basic regressions
– statistical inference

In the maths part, there was an intro to stochastic calculus which I found challenging, but my advice is not to get discouraged if this might be hard. I will discuss more about it in the Asset Markets section.

Indicative readings and materials for year 1
Year 1 course contents are mainly covered in the below books and together with the class notes, (these are handed out at beginning of your module) this should be enough in covering core topics.

Berk and P. DeMarzo, Corporate Finance, Pearson International Edition.
Z. Bodie, A. Kane and A. Marcus, Investments, 8th edition, McGraw Hill. ISBN:0-07-338237-X

When I was studying for the derivatives portion of Asset Markets, I also used “Options, Futures, and Other Derivatives” by John Hull which had a very clear explanation regarding the option pricing topics.

Asset Markets (FM423, 1 credit)
Information about this course can be found here.

Being one of the two core modules of the programme, Asset Markets really puts a lot of emphasis on covering the building blocks of finance and helps you develop the necessary tools for tackling more complex problems in the field.

– Interest Rates, APRs, EARs
– Spot vs Forward Rates, Duration, Bond Pricing
– CAPM, modern portfolio theory, APT, Portfolio Measurement
– option pricing, risk neutrality, binomial models, Black Scholes PDE

I would say that the description on the official website’s course content section is fairly accurate so I won’t focus too much on it.

If you have studied finance in your undergraduate degree or if you are taking a financial qualification, the concepts might sound familiar and arguably fairly straight forward, but rest assured that the way the module is taught makes it pretty challenging. With the exception of a handful of students in my year, most found this module tough. The course covers a broad range of concepts but it ensures that students come out of it with a solid understanding and appreciation for everything (or most) of the content which is covered. When I attended the open event for this degree, the selling point for me was an analogy that one of the senior lecturers made. If the subject of finance were to be compared to a car, this course teaches students not just how to drive the car but how the car is composed down to the nitty gritty parts and how the engine works. It wouldn’t be an overstatement for me to say that this module lived up to its expectations in terms of teaching quality.

 

Corporate Finance (FM422, 1 credit)
Information about this course can be found here.

This module covers most of the classic concepts in corporate finance. Similarly, to Asset Markets, I would say that the course content is fairly accurate but to add my take on the matter, I would say that the below concepts were key ones when I took the course:

– WACC, arguments relating to capital structure (MM theories), debt overhang, asset substitution
– Calculating Free Cashflow (FCFE, FCFF)
– NPV vs. APV
– Valuations using multiples

Similar to what I said about Asset Markets, the course is really well designed in giving students a solid grasp and appreciation towards core concepts. When analysing different choices which companies are faced with (issuing debt vs equity for example), it does so by explaining and posing the problem in a very clear manner by analysing how various stakeholders are affected given the company’s capital structure and expected project payouts. It also ensures that students are very comfortable in calculating a company’s enterprise value using a number of valuations models (yes, you will be using excel sheets and discounting cash flows and pretending to be working in M&A).

Some tips for year 1

Don’t Memorise. This is not a module that you can pass simply by memorising formulas. For example, if you have been successful so far in simply memorising and applying CAPM for calculating required rates of return, using Duration for estimating bond price changes, without having a good understanding of the underlying theory, you will struggle on the exam. The exam questions are cleverly worded and will throw curve balls to ensure that that students are tested on their mastery and grasp of the underlying concepts. Trust me.

Make good use of past exam papers. This doesn’t just apply to this module but for exams in general. You should have access to past exam papers so make sure to have looked at them so you understand which concepts tend to get tested more often.

Have a strategy for the exam based on past papers. In the final exam, you are given two sections, part A and part B. You need to pick 2 questions from each section and each question carries a mark of 25. Based on the topics that were tested in past exam papers, try to have a clear idea of which questions you are looking to attempt. For Asset Markets, if some of the maths relating to Black Scholes is too challenging, maybe you might want to focus more on the portfolio management and bond pricing sections. This is not a masters in financial engineering and I think the faculty are aware of this, so from past exam papers I got the impression that exams were written to give students a choice. If you find the material interesting and the maths not particularly difficult, then you should be able to pick up easy marks.

Make good use of a Financial Calculator. If you have already purchased a financial calculator and you are proficient in using it, this will be an advantage. Unless the calculator stores any text you should be able to use it (unless there have been any recent changes with regards to calculator policy). It’s time to get your BAII plus or HP12c out of the cupboard.

This pretty much concludes my post for year 1. I will be adding a post for year 2 at some point. I would like to conclude this post by saying that year 1 was and will be harder than year 2. This is not because year 2 is easier but because you will have done a lot of the hard work in year 1. Year 2 is more about developing your specialisation. Are you looking to take a more corporate finance, portfolio management or risk management route? The university has been very clever in this regard as it aims to appeal to a wide range of candidates. Year 1 is where all students gain a common foundation, year 2 is where students focus to develop the necessary skills which are relevant to their areas of expertise.

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