Spring 2008 - Analytic Methods
Johnson, Calvin H
Credit Hours: 2 Course ID: 279M Unique # 28330
|TTH||9:30 - 10:20 am||TNH 3.115|
Friday, May 9
1:30 pm -
This course is restricted to upper division students only.
Increasingly, lawyers will need to present and evaluate arguments framed in quantitative terms. This course will give a basic introduction to the following concepts: (1) Financial Economics. Value depends upon the present value of future cash flows expected from an investment. This section will introduce the concepts of discounted present value and internal rate of return. "Annuity" problems covered include "How much will my bond go down in value if interest rates rise generally?", "How much of a pension can I expect if I have a nest egg of a given size?" and "How much house can I afford if my payments can be X a month?" (2) Personal Finance. Investment decisions tend to follow a natural life cycle. People borrow to go to school or buy a first house, they then pay off debts and start to accumulate for future tuition and retirement, and finally they draw down on their savings in retirement. Investment wisdom requires dampening risk and matching financial decisions to real needs. We will introduce the concepts of efficient market and diversification to dampen risk. We will compare, e.g., term and whole life insurance. (3) Decision trees. Outcomes often have to be stated as probabilities. A decision tree helps unpack complex decisions into steps, and helps reach an expected value for outcomes that depend on probabilities (4) Game Theory. The best strategic decisions often depend upon how a partner or opponent can be expected to act. Strategies often have to be formulated in the face of incomplete information. (5) Accounting and Financial Statements. Business information is commonly made available within the format of double entry bookkeeping and in conformity with the rules of generally accepted accounting methods. Without a passing acquaintance with the basic financial statements, that is, the income statement and the balance sheet, law graduates face a serious handicap when they enter the world of practice. (6) Microeconomics. Free market prices are praised because they reflect revealed real preferences and real costs of resources. Supply and demand curves are an efficient language to present expected prices and also the losses that can be expected from monopolies, taxes and output restrictions. There are mandatory weekly homework assignments with number answers. Satisfactory mastery of the homework is a prerequisite for taking the exam. This course is a window or introduction and it is not appropriate for advanced students. Students who have majored or minored or have advanced degrees in economics or finance may not take the course. Please contact instructor in borderline cases.