BUST08003: pass the exams, not just read the notes
Your complete guide to The University of Edinburgh's principles of finance module. See where the marks are, work real practice questions, and study with an AI tutor that knows BUST08003.
Sia generates BUST08003 practice questions, walks through financial decision making and pricing a stream of cash flows step by step, and quizzes you on the material the exam weights most heavily.
Worked example
A project costs 1,000 today and returns 600 at the end of each of the next two years. The firm's cost of capital is 10%. Should it invest?
Discount each cash flow at the cost of capital rather than adding them: 600 / 1.10 = 545.45, and 600 / 1.10^2 = 495.87.
Subtract the initial outlay: NPV = 1,041.32 − 1,000 = 41.32, which is positive, so the project adds value at a 10% cost of capital.
Sanity check the sensitivity: the internal rate of return here is about 13%, so the decision would flip if the cost of capital rose above that.
The trap: Deciding on payback rather than on NPV. Payback is under two years here and it would also be under two years for a project that destroyed value, because it ignores both the timing of cash flows within the period and everything that happens afterwards. The cost of capital is the whole point of the capital budgeting topic, and an answer that never uses it has not made a financial decision. classic slip!
One exam decides 80% of your grade. Four fifths of the course mark in a single sitting, the highest concentration of any module in this guide. This whole page is built around that.
Overview
What BUST08003 is, and where it sits
Principles of Finance is the Business School's second-year finance course and the gateway to finance Honours: the catalogue states plainly that it is a prerequisite for finance Honours courses. It builds on the introductory finance material in the first-year Business School core and is described as having a quantitative slant.
The course has two halves. The first works through how assets are valued in financial markets: financial decision making, pricing a stream of cash flows, bond prices, stock prices, option prices, and risk and return. The second turns to company finance theory: the capital budgeting decision, sources of finance, the cost of capital, capital structure and dividend policy.
The teaching pattern is deliberate about the gap between theory and practice. Topics are introduced in lectures, then related to particular situations in tutorials to show how the principles apply, and the coursework asks students to analyse and discuss an issue using their own judgement. The third learning outcome is explicitly about discussing critically what finance theory contributes to financial practice, which is not a computational skill.
One thing to plan around before enrolling: this course cannot be combined with Introduction to Financial Markets or Introduction to Corporate Finance, and for the Economics with Management Science programme it is one of two mandatory alternatives in Year 2, the other being Business Economics.
Always treat your own course outline and the exam timetable as authoritative.
Difficulty & time commitment
Is BUST08003 hard, and how much time does it take?
BUST08003 is manageable if you keep a weekly rhythm and treat the back half as the main event. The pattern is consistent: it starts gently and steepens, and the heaviest assessment is the part that separates grades.
The difficulty curve and the assessment weighting point the same way: the back half is harder and worth more. Front-loading effort there is the highest-return decision in the module.
Is this module for you
Who tends to do well, and who tends to struggle
You will likely do well if
- You are fast and accurate under time pressure; two hours decides 80% of the grade.
- Discounting is automatic for you by mid-semester, since every valuation topic is an application of it.
- You can write a tight 1,200 words with a judgement in it, which is what the coursework asks for.
- You use tutorials for the applied situations rather than for re-explaining the lecture.
You may struggle if
- You rely on coursework to build a cushion. There is only one piece and it is worth 20%.
- You treat the corporate finance half as separate from the valuation half; it is the same discounting logic applied to the firm.
- You want a discursive finance course. The catalogue calls the slant quantitative and means it.
- You are also enrolled in Introduction to Financial Markets or Introduction to Corporate Finance, which is not permitted.
- Work past-style problems to time, not to completion; the constraint in a two-hour paper is speed, not method.
- For each asset class, write down what is being discounted and at what rate. Most exam errors are one of those two, not the arithmetic.
- In the essay, take a position and defend it. The learning outcome asks you to discuss critically what theory contributes to practice.
- Learn where the models break: the dividend model when growth approaches the required return, NPV when cash flows are misestimated.
Syllabus
The 9 topics, topic by topic
The exam-weight marker on each topic shows where the marks concentrate. The amber topics carry the highest exam weight.
T1 · Financial decision making
Prices and returnsThe framing question of the course: how a financial decision is evaluated before any pricing formula appears.
T2 · Pricing a stream of cash flows
Prices and returnsDiscounting as the single technique everything else in the course is an application of. Fluency here decides the December paper.
T3 · Bond prices
Prices and returnsInterest rates and the pricing of fixed-income securities, including the relationship between price and required yield.
T4 · Stock prices and returns
Prices and returnsValuing a claim on an uncertain stream, and what market prices and returns reveal.
T5 · Risk and return
Prices and returnsStock market risk and how it feeds into the pricing of shares. The hinge between the two halves of the course.
T6 · Option and futures prices
Prices and returnsThe characteristics and pricing of financial futures and options, treated at an introductory level.
T7 · The capital budgeting decision
Company financeApplying discounting to business investment decisions, which is where the first half is spent.
T8 · Sources of finance and the cost of capital
Company financeWhere funding comes from and what it costs once weighted, the number every investment decision is measured against.
T9 · Capital structure and dividend policy
Company financeThe financial structure decision and the dividend decision, and what theory says each does to firm value.
How it's assessed
Assessment structure
| Component | Weight | Format & timing |
|---|---|---|
| Written examination | 80% | Individual written examination, two hours, held in the December diet. The August resit paper is also two hours. December. Four fifths of the course mark in a single sitting, the highest concentration of any module in this guide. |
| Coursework essay | 20% | Individual, 1,200 words. The brief asks students to analyse and discuss a particular issue, using their own judgement where relevant. Semester 1. The only mark available outside the examination. |
- The published components sum to 100. No separate hurdle is published. A resit examination is available in the August diet and also runs to two hours.
- One individual two-hour written paper in the December diet carrying 80%, plus a 1,200-word individual coursework essay carrying 20%.
- Calculator policy: Not stated in the course catalogue entry.
This is an exam-cram module. With the exams at 80% of the grade and the written examination alone at 80%, your result is overwhelmingly decided by how well you perform under time pressure. Four fifths of the course mark in a single sitting, the highest concentration of any module in this guide.
How to actually pass it
A weekly rhythm, two checklists, and the traps to avoid
The module rewards consistency over cramming, and practice over re-reading. Here is the loop that works, then what to have nailed before each exam.
The weekly loop
Before the mid-semester checklist
- Discounting a stream of cash flows without hesitation
- Bond pricing when the required return differs from the coupon
- Stock valuation and what returns represent
- Risk and its effect on required return
Before the final heaviest topics
- Futures and options: characteristics and pricing at the level taught
- Capital budgeting decisions using NPV and its alternatives
- Sources of finance and the weighted cost of capital
- Capital structure and its effect on value
- Dividend policy and what it signals
- A critical view of what finance theory contributes to practice
The mistakes that cost marks
Deciding on payback instead of NPV. Payback ignores the timing within the period and everything after it. The cost of capital exists in the question for a reason.
Discounting at the wrong rate. The coupon rate, the dividend growth rate and the cost of capital are different quantities, and swapping them produces plausible-looking answers.
Treating the essay as a summary. The brief asks for analysis and discussion using your own judgement, so a description of the theory leaves marks unclaimed.
Leaving revision to December. With 80% in one paper and only 28 contact hours, the independent work is the course.
Teaching team
Who teaches BUST08003
The bios below are factual. We do not rate lecturers; any star ratings are submitted by students who have taken BUST08003.
Ms Yue Liu
Listed as course organiser for Principles of Finance in the 2026/27 course catalogue for the Business School.
Teaching team as listed in the module materials reviewed. AskSia does not rate lecturers; star ratings are submitted by students who have taken BUST08003.
Formula & concept sheet
The vocabulary and formulas you must own
- Present value
- What a future cash flow is worth today once discounted; the single most reused idea in the course.
- Discount rate
- The rate at which future amounts are converted to present ones, set by the risk of the cash flows.
- Bond price
- The present value of a bond's coupons and face value at the required yield.
- Required return
- What an investor demands for bearing an asset's risk; the discount rate in every valuation here.
- Systematic risk
- Risk that cannot be diversified away, and therefore the only risk that is priced.
- Option
- A contract giving the right but not the obligation to transact, priced from the underlying asset's behaviour.
- Net present value (NPV)
- Present value of a project's cash flows minus its cost; positive NPV adds value.
- Cost of capital
- The weighted cost of the firm's funding and the hurdle rate for new investment.
- Capital structure
- The mix of debt and equity financing, and the question of whether it changes firm value.
- Dividend policy
- How and whether cash is returned to shareholders, and what the choice signals.
Common acronyms: {'term': 'SCQF', 'def': 'Scottish Credit and Qualifications Framework'} · {'term': 'ECTS', 'def': 'European Credit Transfer and Accumulation System'} · {'term': 'DRPS', 'def': "Degree Regulations and Programmes of Study, the university's course catalogue"}.
Set texts
The prescribed reading
The syllabus references map straight onto these.
Corporate Finance, 3rd edition (Global edition)
Jonathan Berk and Peter DeMarzo (Pearson, 2013).
Essentials of Corporate Financial Management
Glen Arnold.
Where it fits
Prerequisites, related modules & why it matters
Students must have passed either the first-year Business School pair Global Challenges for Business and The Business of Edinburgh, or Economics 1A and Economics 1B, or Economic Applications and Economic Principles. It cannot be taken alongside Introduction to Financial Markets or Introduction to Corporate Finance. Visiting students need at least one introductory business studies course at grade B or above.
Your BUST08003 study toolkit
Study the module with Sia, not just read about it
Each tool already knows BUST08003: your syllabus, your texts, and where the marks are. Grouped by how you study, from first contact to exam week.
FAQ
Frequently asked questions
How is Principles of Finance assessed?
Written examination 80% and a 1,200-word individual coursework essay 20%. The exam is two hours and sits in the December diet.
What are the entry routes?
Either the first-year Business School pair, Global Challenges for Business and The Business of Edinburgh, or Economics 1A and Economics 1B, or Economic Applications and Economic Principles.
Can I take it with Introduction to Corporate Finance?
No. The catalogue lists Introduction to Financial Markets and Introduction to Corporate Finance as prohibited combinations.
Is it needed for finance Honours?
Yes. The catalogue states it is a prerequisite for finance Honours courses, and for the Economics with Management Science programme it is one of two mandatory Year 2 alternatives alongside Business Economics.
How quantitative is it?
The catalogue describes a quantitative slant. You will price bonds, stocks, futures and options, and work through capital budgeting and cost of capital calculations, but the third learning outcome is about critically discussing what the theory contributes to practice.
What is the recommended book?
Berk and DeMarzo, Corporate Finance, 3rd Global edition, with Arnold's Essentials of Corporate Financial Management and Moles, Parrino and Kidwell's Corporate Finance as additional references.
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