BFB1001 Foundations of Finance
The Complete Study & Assessment Guide · S2 2026BFB1001 Overview
- Level 1
- Semester 2, 2026
- No prerequisites
- Within-semester assessment
- Excel used for financial mathematics
BFB1001 Foundations of Finance is Monash University's Level 1 introduction to the decisions that connect money today with uncertain cash flows later. The unit begins with suppliers and users of funds, required return and the financial system.
- Put dates before formulas Compare cash flows only after moving them to a common date.
- Match rate to cash flow Use a discount rate with the same period and risk as the cash flow.
- NPV makes project decisions Use incremental cash flows to decide whether a project adds value.
- Read the balance sheet Trace institutional funding, assets, transformation services and retained risks.
What you get in the full BFB1001 Study & Assessment Guide
- 9 chapters, 41 pages — every assessed topic, week by week
- 27 original practice questions, each with a model answer
- 9 worked examples, solved the way BFB1001 marks
- 14 computed figures, redrawn from the course’s own numbers
- Before-you-submit checklist for the Exercises (40%) — what markers reward, what costs marks
Free on this page: assessment table, chapter map, one worked example, key terms, FAQ. The rest is in the full study & assessment guide.
How BFB1001 is assessed
| Component | Weight | Format |
|---|---|---|
| Exercises: In-class | 20% | Weekly during tutorials; the best eight of ten topic exercises count. |
| Exercises: Homework | 40% | Five biweekly Moodle quizzes worth 8% each; Excel may be required. |
| Within-semester Test | 40% | Friday of Week 11; 90 minutes; closed book; one attempt; Topics 1 to 8; no separate hurdle. |
The Monash handbook publishes Exercises at 60% and Quiz or Test at 40%; the Semester 2, 2026 unit schedule provides the detailed 20% plus 40% plus 40% split shown here.
Assessment structure
Segment widths reproduce the published weights and total 100%.
What other students are asking about BFB1001
- Where can I find lecture notes or study guides for BFB1001 at Monash?
- The BFB1001 study guide in AskSia Library covers Foundations of Finance in 9 chapters, with the assessment table, a chapter-by-chapter topic map, key terms and a worked example, free to read on this page.
- Is there a final exam in BFB1001?
- No final exam is listed in the offering this AskSia Library guide is built from; BFB1001 is assessed by Exercises: In-class 20%, Exercises: Homework 40%, Within-semester Test 40%.
- What does BFB1001 cover on value, price and time value of money?
- In AskSia Library's BFB1001 guide, the Value, Price and Time Value of Money chapter explains topic 2. Timelines, present value, future value and discount-rate sensitivity.
- What does BFB1001 cover on annuities and perpetuities?
- In AskSia Library's BFB1001 guide, the Annuities and Perpetuities chapter explains topic 3. Ordinary annuities, annuities due, deferred streams and perpetuities.
- What does BFB1001 cover on risk and capital budgeting?
- In AskSia Library's BFB1001 guide, the Risk and Capital Budgeting chapter explains topic 4. Incremental cash flows, NPV, IRR, WACC and sensitivity.
Current BFB1001 dates
| Date | Item | Control |
|---|---|---|
| Weekly during Topics 1 to 10 | In-class exercises | |
| Five biweekly releases | Homework quizzes | |
| Friday of Week 11 | Within-semester test |
Dates are as published in the Semester 2, 2026 unit schedule and final test specification. Confirm exact deadlines and submission settings in the live LMS.
What BFB1001 covers
Nine chapters move from the flow of funds and time value through capital budgeting, institutions, regulation, equities and debt securities.
Finance, Capital and Required Returns
Topic 1. Flow of funds, financial claims, time value, inflation and risk premiums.Finance, Capital and Required Returns explains how saving units supply capital to users through markets and financial institutions.
- Flow of funds from suppliers to users
- Direct and intermediated finance
- Financial assets and claims
- Time value and expected inflation
- Risk premiums and required return
- Expected versus realised return
Value, Price and Time Value of Money
Topic 2. Timelines, present value, future value and discount-rate sensitivity.Value, Price and Time Value of Money distinguishes a transaction price from a conditional estimate of economic value. Price records what is paid, while value depends on expected cash flow, timing and the return required for its risk.
- Value versus market price
- Cash-flow timelines
- Present value of a single sum
- Future value through compounding
- Rate and period alignment
- Discount-rate sensitivity
Annuities and Perpetuities
Topic 3. Ordinary annuities, annuities due, deferred streams and perpetuities.Annuities and Perpetuities values repeated cash flows by classifying their pattern before using a factor.
- Ordinary annuities
- Annuities due
- Deferred payment streams
- Perpetuity valuation
- Payment and period counts
- Splitting irregular streams
Risk and Capital Budgeting
Topic 4. Incremental cash flows, NPV, IRR, WACC and sensitivity.Risk and Capital Budgeting turns project proposals into dated incremental cash flows and evaluates them with net present value.
- Incremental project cash flows
- Sunk and opportunity costs
- Net present value
- Internal rate of return
- Weighted average cost of capital
- Sensitivity and scenario analysis
Mortgages, Securitisation and Managed Funds
Topic 5. Amortisation, loan pools, investor funding and net asset value.Mortgages, Securitisation and Managed Funds follows household and investor cash through three linked structures.
- Mortgage amortisation
- Interest and principal split
- Loan securitisation
- Pooling and tranching
- Managed-fund diversification
- Net asset value per unit
Financial Regulation
Topic 6. Market failure, prudential stability, conduct and regulatory trade-offs.Financial Regulation starts with a defined market failure and traces its mechanism to a targeted policy response.
- Information asymmetry
- Agency and conduct problems
- Systemic risk
- Capital and liquidity requirements
- Disclosure and licensing
- Supervision and enforcement
Financial Institutions and Bank Margins
Topic 7. Intermediation, balance sheets, net interest margin and institutional risks.Financial Institutions and Bank Margins reads intermediation through an institution's funding, assets, services and retained risks. Deposits are bank liabilities because money is owed to customers, while loans are assets because borrowers owe the bank.
- Financial intermediation
- Bank assets and liabilities
- Maturity and liquidity transformation
- Net interest income
- Net interest margin
- Credit, liquidity and repricing risk
Equity Securities and Share Valuation
Topic 8. Shareholder claims, returns, dividends and constant-growth valuation.Equity Securities and Share Valuation explains ordinary shares as residual ownership claims with uncertain dividends and price changes.
- Ordinary shareholder rights
- Residual claims and limited liability
- Primary and secondary markets
- Dividend and capital-gain return
- Constant-growth dividend model
- Valuation sensitivity
Debt Securities and Bond Valuation
Topic 9. Coupon cash flows, yield, premium and discount bond pricing.Debt Securities and Bond Valuation separates a conventional bond into periodic coupon payments and repayment of face value.
- Debt claims and priority
- Coupon and face value
- Yield to maturity
- Bond present-value decomposition
- Premium, par and discount
- Interest-rate and credit risk
It then develops the mathematics needed to compare cash at different dates: present value, future value, annuities and perpetuities. Those tools feed directly into capital budgeting, where students identify incremental project cash flows, discount them at a risk-appropriate rate and interpret net present value.
Later topics explain mortgages, superannuation and managed funds, financial regulation, financial institutions, equity securities and debt securities.
The Semester 2, 2026 offering is assessed entirely within semester. The official handbook groups Exercises at 60% and Quiz or Test at 40%.
The detailed current outline splits that total into weekly in-class exercises worth 20%, five homework quizzes worth 40%, and a Week 11 test worth 40%. The test is closed book, lasts 90 minutes, permits one attempt and has no separate hurdle. Its 80 marks cover Topics 1 to 8 only: 20 marks of multiple choice, 20 of capital budgeting, 20 of finance applications, 10 of regulation or institutions, and 10 of equities.
The outline describes the balance as roughly 70% calculation and 30% theory.
The practical challenge is not learning many unrelated formulas. It is recognising the cash-flow pattern, aligning the rate and period, keeping signs and timing visible, and translating the result into a financial decision.
A correct calculation should always be followed by its meaning: whether value exceeds price, whether a project clears its required return, whether a margin reflects interest performance rather than final profit, or which assumption could reverse the conclusion.
Worked example · free
Decide whether a three-year project adds value
- 1Place the $90,000 initial cost at time zero as a negative cash flow and the three receipts at years one, two and three.
- 1Discount year one: $35,000 / 1.09 = $32,110.09.
- 1Discount year two: $42,000 / (1.09)^2 = $35,350.56.
- 1Discount year three: $50,000 / (1.09)^3 = $38,609.17.
- 2Add present inflows: $106,069.82, then subtract the $90,000 initial cost to obtain NPV of $16,069.82.
- 2Accept because the positive NPV is expected value added today after providing the 9% required return.
Key terms
- Required return
- The minimum expected return needed to compensate for time, inflation and the risk of a cash flow.
- Present value
- The time-zero equivalent of a future cash flow after discounting at the required return.
- Future value
- The amount a present cash flow grows to after compounding for a stated number of periods.
- Ordinary annuity
- A finite stream of equal regular payments beginning one period after the valuation date.
- Perpetuity
- An equal regular cash-flow stream that continues indefinitely, with the standard form beginning in one period.
- Net present value
- The sum of discounted incremental project cash flows, including the signed time-zero investment.
- Risk premium
- Required return above a comparable safe return as compensation for additional uncertainty.
- Securitisation
- Pooling financial assets and issuing securities supported by the cash flows of that pool.
- Net asset value
- A fund's assets minus liabilities, commonly expressed per unit outstanding.
- Systemic risk
- The possibility that distress spreads through connections or common exposures and disrupts the financial system.
- Net interest margin
- Net interest income divided by average earning assets for a financial institution.
- Dividend discount model
- A valuation method that discounts expected shareholder dividends to the present.
- Yield to maturity
- The discount rate equating a bond's price with its promised coupon and face-value cash flows.
BFB1001 FAQ
How is the unit assessed in Semester 2, 2026?
The detailed unit schedule lists in-class exercises worth 20%, five homework quizzes worth 40%, and a Week 11 within-semester test worth 40%. The official handbook groups the two exercise components together at 60% and lists quiz or test at 40%. The three detailed rows sum to 100%.
Is there a final examination in this unit?
The current offering is assessed entirely within semester. Its major timed assessment is a 90-minute closed-book test in Week 11 rather than a centrally scheduled final examination. The test is worth 40%, allows one attempt and is conducted through the university eAssessment platform.
Which topics are covered by the Week 11 test?
The published specification says Topics 1 to 8 are assessed. Topics 9 and 10 are not included. The 80 marks cover multiple choice, capital budgeting, other finance applications, financial regulation or institutions, and equity securities.
Is the Week 11 test a hurdle?
No separate hurdle applies to the test. The unit schedule states that students need an overall score of 50% to pass and that no single assessment item has its own hurdle requirement. The test specification repeats that there is no hurdle for this assessment.
How much calculation is in the test?
The test specification describes the paper as approximately 70% calculation and 30% theory. Calculation practice should focus on time value, repeated cash flows, capital budgeting and equity applications, while theory revision should preserve precise causal explanations for regulation and institutions.
Do I need Excel for this unit?
Yes. The unit teaches financial mathematics through Excel, and assessment can require it. For the Week 11 test, the capital-budgeting question supplies a permitted Excel answer workbook that also contains the formula and working sheet. Follow the current official instructions about permitted files and submission.
How difficult is the unit?
The source describes an introductory unit for students who have not studied finance before, but it expects consistent preparation and accurate spreadsheet use. Difficulty comes from choosing the right cash-flow model, matching periods and rates, and interpreting the result, rather than from memorising a long list of unrelated formulas.
Is there an official practice test?
Yes. The current subject materials provide a practice test and state that it has the same format and structure as the real test. Use it to rehearse the capital-budgeting download and upload workflow as well as pacing across calculation and theory sections.
Questions students ask in each BFB1001 chapter
- Who supplies funds in the financial system?
- Households, firms or governments spending less than current income can supply funds and receive financial claims in exchange. The claim may be a deposit, bond or share, and its cash-flow rights determine how the supplier is compensated for time and risk. Chapter 01 · Finance, Capital and Required Returns
- Why is a dollar today worth more?
- It can be used immediately and can earn a return before the future date. Waiting also exposes the recipient to inflation and uncertainty, so economic equivalence requires a return that compensates for those features. Chapter 02 · Value, Price and Time Value of Money
- Why is an annuity due worth more?
- Every payment arrives one period earlier, so each is discounted less and can be used sooner. Multiplying the otherwise identical ordinary-annuity value by one plus the periodic rate captures that one-period shift. Chapter 03 · Annuities and Perpetuities
- Why use cash flow instead of accounting profit?
- Investment decisions depend on actual funds committed and received at specific dates. Accounting profit can include non-cash allocations and omit the timing of investment, so it may not represent the cash resources changed by acceptance. Chapter 04 · Risk and Capital Budgeting
- Why does the interest part of a mortgage fall?
- Interest is calculated on the opening balance, which declines as principal is repaid. With a level payment, less interest leaves more of each later payment available to reduce principal, accelerating the balance decline. Chapter 05 · Mortgages, Securitisation and Managed Funds
- Why regulate financial institutions?
- Private incentives may not reflect consumer harm or the wider cost of instability, especially where information is unequal or failure creates systemic externalities. Regulation can target those gaps when a specific tool is capable of changing the mechanism. Chapter 06 · Financial Regulation
- Are deposits bank assets?
- No. Deposits are liabilities because the bank owes money to customers and must honour withdrawal or payment terms. Loans are assets because borrowers owe principal and interest to the bank under their loan contracts. Chapter 07 · Financial Institutions and Bank Margins
- Are ordinary dividends guaranteed?
- No. Dividends depend on company performance, policy and legal capacity, unlike a contractual fixed-interest promise. A company may retain earnings for investment, reduce distributions or omit them even when shareholders expected cash. Chapter 08 · Equity Securities and Share Valuation
- Why do bond prices fall when yields rise?
- Existing fixed cash flows become less attractive relative to the higher required return, so their present value falls. The contractual coupon does not change; market adjustment occurs through the price investors are willing to pay. Chapter 09 · Debt Securities and Bond Valuation
How to prepare for the assessments
Study BFB1001 as a sequence of cash-flow decisions. First draw dates, amounts and signs; then classify the pattern as a single sum, annuity, perpetuity, project, dividend stream or bond. Match the periodic rate and number of periods before calculating. After every answer, write one sentence explaining what the number means against a price, required return or other benchmark.
For capital budgeting, create an incremental cash-flow audit before using Excel, separating sunk costs, opportunity costs, working capital, operations and terminal flows. For regulation and institutions, practise causal chains: identify the failure or transformation, explain how it creates a benefit or risk, then match a response and observable outcome.
Use the official practice test to rehearse the 80-mark structure and the workbook workflow. Review errors by category rather than question: timing, rate conversion, signs, classification, interpretation or unsupported assumption. That approach turns each mistake into a correction that transfers across many problems.
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