Economics 422: Investment, Capital, and Finance

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Course Description

Eric Zivot
346 Savery
Office Hours:  Tu, W, Fri 11-12
ezivot at u dot washington dot edu

Summer 2010

Economics 422 is an introduction to the basic concepts underlying finance theory. The theory of finance is concerned with the ways in which individuals and firms allocate resources through time. The theory seeks to explain how the allocation of resources through time is facilitated by (a) firms which provide the means by which individuals physically transform current resources into resources available in the future (production-investment decision) and (b) capital markets which provide a mechanism by which individuals can exchange resources over time. Students will learn basic details on a number of different security types and a number of major financial markets: stocks, bonds, options and futures. Relevant financial calculations will be presented as well as real world examples. Core models of the field will be presented with additional exposure to current trends in finance theory.


Solid understanding of intermediate microeconomics (Econ 300), calculus (Math 124 or157) and statistics (Econ 311) is assumed. This course is quantitative and makes extensive use of arithmetic, algebra and some calculus. Homework assignments will utilize the spreadsheet program Microsoft Excel. Be prepared to develop or refine your problem solving skills.

Required Texts

Primary Texts:

  1. Pearson Custom Business Resources: Investment Capital Finance, selected textbook chapters from Berk and DeMarzo Corporate Finance 2/e and Perloff  Microeconomics, 5/e.

Supplementary Readings: On reserve at OUGL. There are also required reading from the following sources:

  • Jack Hirshleifer and David Hirshleifer, Price Theory and Applications, 6th ed.

  • Hal Varian, Intermediate Microeconomics, 4th ed.


Exams: There will be one midterm exam, about 2 hours, given at the beginning of class  (tentative date: Monday, August 9th). Contact me well in advance if you anticipate a conflict with a scheduled exam. Makeup examinations are not provided routinely. To be eligible for a makeup exam there must have been a serious disturbance to your life: (illness, death in the family). There will be a two-hour final exam on Friday, August 20th from 8:30 - 10:20.

Grade Distribution: Grades will be based 20% on the best 7 out of 8 problem sets, and the two investment project reports (see below); 40% on one midterm exam given at the beginning of class as indicated on the schedule; and 40% on the final exam

The Investment Project and Problem set assignments are posted on the course website. Participation in the weekly discussions of current financial news and developments is highly encouraged. Regular reading of the Wall Street Journal and the Finance section of The Economist will be useful for data retrieval and discussion purposes.