SMU 3rd Semester Finance: Key Question Areas

Singapore Management University’s (SMU) 3rd semester finance courses, often building upon foundational knowledge from earlier semesters, delve into more sophisticated concepts and applications. Students can expect a rigorous curriculum designed to prepare them for careers in various financial sectors.

Corporate Finance

A significant portion of the coursework likely focuses on Corporate Finance. Expect questions involving:

• Capital Budgeting: Evaluating investment opportunities using techniques like Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period, and Profitability Index. Questions might require comparing projects with different lifespans, cash flow patterns, and risk profiles. Sensitivity analysis and scenario planning are often crucial.
• Cost of Capital: Calculating the Weighted Average Cost of Capital (WACC) and understanding its components (cost of equity, cost of debt, and cost of preferred stock). Questions may involve different methods for calculating the cost of equity, such as the Capital Asset Pricing Model (CAPM) or the Dividend Discount Model (DDM).
• Capital Structure: Analyzing the optimal mix of debt and equity for a firm. Questions might explore the Modigliani-Miller theorem (with and without taxes), agency costs, and the impact of financial distress.
• Dividend Policy: Examining factors influencing dividend decisions, such as investor preferences, tax implications, and investment opportunities. Questions might involve different dividend payout policies and their effects on shareholder value.
• Working Capital Management: Managing short-term assets and liabilities, including inventory, accounts receivable, and accounts payable. Questions could involve optimizing inventory levels, managing credit policies, and using cash budgeting techniques.

Investments

Another key area is Investments, where students will grapple with:

• Portfolio Theory: Understanding the principles of diversification, risk-return tradeoffs, and the efficient frontier. Questions may involve calculating portfolio returns, standard deviations, and Sharpe ratios.
• Asset Pricing Models: Applying models like the CAPM and the Arbitrage Pricing Theory (APT) to determine the expected return on an asset. Questions might involve identifying mispriced securities and constructing arbitrage portfolios.
• Fixed Income Securities: Analyzing the characteristics and valuation of bonds, including yield-to-maturity (YTM), duration, and convexity. Questions may involve calculating bond prices, understanding interest rate risk, and constructing bond portfolios.
• Derivatives: Understanding the basics of options and futures contracts. Questions may involve calculating option payoffs, hedging strategies, and speculating on price movements.
• Market Efficiency: Evaluating the different forms of market efficiency (weak, semi-strong, and strong) and their implications for investment strategies.

Other Possible Topics

Depending on the specific courses offered, students might also encounter questions related to:

• Financial Modeling: Building financial models to forecast future performance and value companies.
• International Finance: Understanding exchange rates, foreign exchange risk, and international capital budgeting.
• Real Estate Finance: Analyzing real estate investments and financing options.

Overall, SMU’s 3rd semester finance questions demand a strong understanding of core financial principles and the ability to apply these principles to real-world scenarios. Expect questions that require critical thinking, problem-solving skills, and the ability to communicate financial concepts effectively.