Time is running fast! We are already halfway through the spring term of the MSc Finance programme at Imperial College Business School (ICBS) and I haven’t even reported on last term’s lectures yet. But as promised in October, here are my thoughts on the autumn term’s four core courses.

For me personally, Corporate Finance was the least interesting course, so let’s get it out of the way first. Basically, the lectures were closely based on the Corporate Finance textbook by Jonathan Berk and Peter DeMarzo. This had the advantage that the lectures were clearly structured and it was easy to find reading material going beyond the lecture slides. Unfortunately, in the first few lectures there was a bit of an overlap with the Business Valuation course we had had in September. But to be fair, this was the first time the Corporate Finance lecturer taught the course at Imperial and he later told us that he was going to compress some of the introductory stuff for next year’s class in order to be able to spend more time on the more interesting topics. Roughly speaking, the course was divided into the aforementioned introductory part about the fundamentals of valuation for all-equity firms, and a part about valuation methods taking a firm’s capital structure into account. This second part, stretched out over five lectures, started off with an idealized Modigliani and Miller setting. Each subsequent lecture new complications, such as debt, taxes, leverage and financial distress, were then added to make the valuation models more realistic. The course was concluded by a lecture on mergers and takeovers. Even though I said that I did not find it very interesting myself, I don’t want to sound negative, because the course was all right overall. It could have used some examples containing actual company data or a more elaborate case study instead of exclusively relying on exercises from the book, in my opinion. But the course has been an especially useful introduction for those students going to work in mergers and acquisitions, equity research or related fields, and many of them have since chosen to continue with the Applied Corporate Finance and Advanced Corporate Finance electives, which are offered in the spring and in the summer.

Financial Econometrics is a course I found extremely relevant, considering the importance of econometric methods for empirical research. Especially in finance, however, econometrics is not merely used in academia but also in practice. Many quantitative trading strategies or risk management tools, for instance, are based on results obtained from empirical studies. Unfortunately, the course covered a myriad of topics. On one hand, you could argue that this gives you a complete overview of the basic econometric techniques and I can see why this might be important to the majority of students, most of whom are going to join investment banks upon graduation. On the other hand, however, one must acknowledge that we did not go into a lot of detail in most of the lectures, which I found slightly disappointing. I would have preferred if we had covered only a selection of the topics and looked at them more thoroughly instead. Still, I stand by my point that the course has been useful. It made me aware of many pitfalls to avoid in hypothesis testing and introduced important time series properties that you should test for before drawing any statistical inferences. Also, this was only the first of our econometrics courses: In the spring term, we currently have Advanced Financial Econometrics, which, as the name suggests, is more technical and builds on our knowledge from the previous term’s lectures. Taken together, the two courses introduce a lot of material and they train students rather well in the use of econometrics. In addition to academic papers, the autumn lectures were mostly based on the textbook Introductory Econometrics for Finance by Chris Brooks. It is not very technical, which makes it easy enough to read. I found the book handy as a quick reference during my revisions for the final exam, but overall the lecture slides and the notes from the tutorial classes were already quite self-contained.

Another quantitative subject we covered during the autumn term was that of Mathematical Finance. The course presented an introduction into the pricing of assets in complete and incomplete markets. Almost everything that was covered in Mathematical Finance was new to me, so I got a lot out of the course. The course textbook was Mathematical Techniques in Finance by Ales Cerny. Following the outline from this truly excellent book, which I am certain to flip open again for future reference, the lecturer first introduced a one-period finite state model for the pricing of derivatives as well as the concept of Arrow-Debreu securities. He went on to lecture about state prices, the ubiquitous no-arbitrage pricing theorem and the utilization of risk-neutral probabilities in asset pricing. We eventually stepped from pricing securities in discrete time into the nebulous world of continuous time and stochastic processes, learning about Martingales, Brownian Motion and the Itô formula, to name the most important concepts. Although some of this was difficult to understand during the lectures, the book helped a lot and the course topics have proven useful in our follow-up lectures in the spring term. For instance, we regularly use the concepts from Mathematical Finance in our Asset Pricing and Derivatives course.

At least as insightful was the fourth course, Investments and Portfolio Management. The first lecture began with optimal portfolio selection in the mean-variance space and the capital asset pricing model (CAPM). While I knew this from my previous studies already, a lot of this was new to many students who had previously studied something unrelated, such as engineering or mathematics. We moved on to the APT, multi-factor models and the CCAPM, then discussed the efficiency of markets and behavioural biases and ultimately looked at the predictability of asset returns, which I found to be the most interesting part of the course. The lecturer, one of my favourites at Imperial so far, mostly explained things in detail, provided both practical examples and cited results from the academic literature. But he also moved fast, making IPM a very demanding course. The recommended textbook for the course was Investments by Bodie, Kane and Marcus, but as mentioned already, the lectures relied a lot on academic papers. The textbook was a good complement for the lecture notes, though. In addition, Asset Pricing by Cochrane proved to be an invaluable reference for what we covered on return predictability (some chapters were required readings).

All in all, we studied what feels like a thousand things during the autumn term. Time was always a scarce resource, especially since we were required to regularly submit either individual or group coursework, sometimes up to three assessed pieces of work in a week. The amount of time the coursework takes away from your study schedule is not to be underestimated. What made the autumn term even more demanding for many students is that September-December is the time of the year when the big firms in the finance industry are accepting applications for internships and graduate schemes. The majority of MSc Finance students applied for jobs during those months and thus had multiple job interviews and assessment centres throughout the term.

As I write this, the spring term is already well under way. I will most likely report back on the spring term’s lectures in April. Before then, I’ll have exams to prepare for — they’re not as far away as one might wish. (Four weeks can go by in an instant!)

Since I wrote my first post on my MSc studies some months ago I received a few emails from prospective students applying to universities. After all, it’s that time of the year again. Two questions that came up most often are:

1) What GMAT score should I get in order to be accepted into the MBA/MSc program of my choice?

2) How to prepare for the GMAT?

As you will probably be aware of, most universities require you to take the GMAT (General Management Admissions Test) and it is an important part of applications at business schools around the world. Of course, no student clearly knows how much weight is allocated to GMAT scores relative to other parts of the application. My guess is that most universities have a “soft” rule in place: A good GMAT score will only look good if the rest of the application is up to par, too. If the overall application is bad, the GMAT won’t rescue you. Similarly, if your GMAT score is not in a top quantile, that does not automatically debase your entire application.

This brings us to the first question: The GMAT score required to get into the leading business schools varies. Universities don’t officially state the scores they’d like to see, but some of them post stats of the current class on their websites. These stats will often give the minimum and/or the average GMAT score of that particular class of students. This will give you a good idea of the competition you’re up against. At top schools, you can expect to find average GMAT scores just above 700 for MBA programs and average scores above 750 for PhD programs. Therefore, my advice is: Shoot for that perfect score of 800 (which you won’t get) and make sure that the minimum you will get on a bad day is 700. In fact, you don’t have to be ultra-clever to get 700+. Just spend a lot of time on practicing the different problem types. There is a positive correlation between the time you invest and the GMAT score you end up with. Also keep in mind that the average GMAT scores quoted on universities’ websites are just that. They’re averages and hence there are many students in those programs with scores below that average. Keep calm and stay focused on your goal: A score above 700. But how do you actually get there? On to question two!

Personally, I did the GMAT twice and in the process found out what worked for me and what didn’t. The GMAT is not complicated. Once you understand how it works, it becomes easy to score at least 650 even if you think your math is terrible. Most students perform well in the quantitative part and not quite as good in the verbal section. This may be due to the verbal questions being in English, which is not the first language of many GMAT test takers, but it also shows that a solid preparation will get you many points in the quant section of the GMAT.

When you first start learning for the GMAT, I can recommend The Official Guide for GMAT Review published by the test organizer, GMAC. While the book is not perfect, it is still the best GMAT preparation book I have found. It contains lots of official retired GMAT questions, so the practice questions you will find in the book will resemble those you’re likely to encounter on the actual test. The book is organized in such a way that you first get some tips on how to solve certain question types, followed by practice questions in order of difficulty. Try to work through these parts of the book as quickly as possible, because they should only be the first step on your journey to your GMAT target score. The book provides some sound advice, but its true value lies in the practice questions at the end of each chapter. Make sure to answer all of them and to practice on a daily basis. When you get a question wrong, it is very important to understand what it is you did wrong. Just looking at the correct answer and then quickly moving on won’t cut it if you’re shooting for scores above 700. Personally, I got a great benefit out of writing difficult questions down on individual index cards, with a detailed, self-formulated answer on the back of the card. I ended up with a stack of maybe twenty hard questions that I had either gotten wrong more than once or which had taken me too long to solve. I went through those questions maybe twice a week until I was absolutely certain that I would get similar questions right in the future.

If you find that you have weaknesses in either the quant or the verbal section, I would recommend that you also look into the GMAT Quantitative Review and the GMAT Verbal Review. They contain lots of additional questions, so they’re well worth the investment. One quick tip regarding the verbal section of the GMAT: Make sure not to neglect it! As I said before, many students find it harder to get a high score in the verbal section. This represents a great chance for you, because if you spend lots of time on practicing not just the quant questions but the verbal questions, too, you will find it easier to get into a high percentile in that particular part of the GMAT. The sentence correction questions, for instance, are easy to prepare for and great for improving your GMAT score!

Aside from the official books by GMAC I would not buy any other books, because they won’t offer anything new. Instead, I have an invaluable free resource for you: GMATClub.com. It is a forum that is free to join and its members, many of whom have successfully cracked the GMAT, are extremely helpful. The best part is that the forum offers a never-ending supply of questions ranging from easy to very difficult. The closer I got to my test appointment, the more often I found myself checking out the forum. Also, if you need ideas for how to get to the correct answer more quickly, the forum members will certainly have some creative solutions for you that you might not have thought of.

In addition, I want to recommend ManhattanGMAT.com. This is the website of a test preparation company. I am not going to tell you to sign up for one of their online courses or to buy their books, which I have not tried myself, because I don’t think you really have to. I would rather like to tell you about their online practice tests. The tests are structured like the real GMAT, so they will take roughly four hours to complete. Believe me, it is well worth putting in the time and effort. Advantages of the Manhattan GMAT tests are that they are similar to the real thing, they are good value for the money and the math questions are slightly more difficult than the actual GMAT questions. At least that is what most GMAT Club users and I have experienced. By the way, I’m not affiliated with or getting any money from Manhattan GMAT for recommending their online practice tests, so rest assured that I’m only telling you about them, because I found them very useful.

Finally, GMAC offers a free test preparation software, too. You can download two practice tests from the official GMAT website after registering for the test. I think it makes sense to do the first of the two tests early on. This way you will know what your strengths and weaknesses are, how good your time management is and you will get a first GMAT score. The great benefits of the official practice tests are that the questions are real questions from old tests and the score is likely to be more accurate than the scores calculated by third-party test providers, because only GMAC knows the magic GMAT test score formula. If you purchase the Manhattan GMAT tests and download the official practice tests, you will have a total of eight practice tests. This should be more than enough, but if you still need more, go through the GMATClub.com forum. There you will find additional links to test providers as well as download links to old versions of official GMAT practice tests. However, keep in mind that the actual GMAT scoring system and the question types have changed, so the scores you get on the old practice tests might not be a reliable indicator of what to expect from the actual test.

The September term of the MSc Finance 2012-2013 programme at Imperial College came to a close last week with group coursework and individual tests in the introductory courses. I will therefore take the time to look back at the first month of studies and briefly summarise my impression of the business school so far. If you’re thinking about applying to Imperial’s MSc programme (applications will open again in November), the following might be a good description of what to expect from the first term.

As written before, MSc Finance students at Imperial College Business School (ICBS) start at the end of August already, while the other business school programmes usually begin in October. This first month of studies is meant to serve as a refresher for those who have studied similar topics before or as an introduction into the field of finance for those having another undergraduate background, such as engineering. In addition, it allows the ICBS careers team to work exclusively with MSc Finance and MSc Risk Management students, which is important due to the early start of the bulge brackets “milk round”.

There were four foundation courses: Business Valuation, Markets and Securities, Financial Modelling, and The Finance Industry:

Personally, I found Business Valuation the most interesting of the four, because I think it was of the greatest benefit to me. The lecture introduced the basic accounting and valuation techniques used for valuing a firm or project. Especially the accounting lectures were a good refresher for me and, most importantly, they were not purely theoretical. Instead of simply going through definitions and concepts, we walked through the calculation of free cash flows and the stock prices of different corporations using real financial statements and we looked at past examples of accounting fraud (e.g. WorldCom). While the discounted cash flow method, financial multiples et cetera were of course known to me already and fixed in my mind thanks to my undergraduate degree and internships, I realized that my knowledge of the different financial statements had become a bit rusty over the years. The course served its purpose and got me up to speed in this department again.

Markets and Securities covered many topics, including the basic functioning of the capital markets, financial instruments, pricing theory, diversification and the CAPM. None of these topics was discussed in detail, but again, this was a foundation course to get all students onto a similar level before the beginning of the second term in October. What I mean by this is that, even if you didn’t study finance, economics or business administration for your undergraduate degree, you should not feel discouraged. You can still apply to Imperial’s finance programme, if you’re interested. The first four courses will give you a good foundation, so you won’t be lost once the actual courses start. I should also note that the Markets and Securities lectures were accompanied by Matlab sessions where students could work on practical problems through the application of the theories taught in the lectures. Part of the assessment for Markets and Securities was a group coursework that required students to use Matlab for risk and return calculations. In the end there was an individual assessment in the form of multiple choice questions.

Financial Modelling dealt exclusively with statistics, predominantly discrete and continuous probability distributions. There was a weekly Matlab tutorial for this course as well. I would say that most students have had a good grasp of statistics before, but it is crucial to know the basics inside and outside in order to excel in the forthcoming more difficult lectures.

When I got my timetable for the first week, I did not know what to expect from The Finance Industry course at all. The title is just not specific enough. It turned out to be a course by Imperial’s careers team supposed to give students an overview of the different roles and career paths within the industry. The course was on Thursdays and usually lasted from nine in the morning to seven or eight o’clock in the evening, but it was very valuable for many reasons. First of all, the careers team gave really good first tips on how to go about applying to employers in the financial sector in the City. This really opened my eyes, because the recruitment process in London is different from the process in Germany. There were also practical careers sessions where students could get feedback on their CVs and cover letters. In addition, industry practitioners and several bulge bracket banks gave presentations, which not only provided further insights into what certain jobs might require but also were good networking opportunities.

There were different assessments for all of these courses, including written group coursework, a group presentation and multiple choice tests. Working in groups has been a great experience for me, because you get to know your fellow students better and it is also interesting to work with people who have different backgrounds. This is actually one of the things I enjoy the most about being at Imperial: You meet new people every day and they all have different stories to tell. The diversity of students in terms of nationalities and cultures, work experience as well as academic and personal interests is amazing. This is not just enjoyable on a personal level, but working in diverse groups also prepares you for a job in the major financial centres of the world, where a global mindset and the ability to work in teams are highly valued.

Finally, I want to point out that the MSc Finance programme team has been very dedicated and helpful so far. They have been friendly and very helpful during the initial weeks, always communicating important deadlines and actively asking students whether they have any questions or need help. Taking into account how much students pay for participation in the programme, students should expect a certain service level. I think we have not been let down so far.

Today the autumn term commences. It consists of four compulsory core courses — Corporate Finance, Investments and Portfolio Management, Mathematics for Finance and Financial Econometrics — and they should be a lot more difficult than the foundation courses. I will write more about these lectures soon. In the meantime, if you’re going to apply to Imperial College Business School and have any questions, please feel free to ask them here.