Finance 430 Syllabus - SIUE



Finance 430 Syllabus |Portfolio Analysis |Instructor: Rakesh Bharti | |

|Section 022 | |Address: 3147, Alumni Hall |

|Summer, 2005 |Contact: (618) 650-2549; rbharat@siue.edu |

Office Hours: 1:30-2:00 PM (TR); 5:30-6:00PM (WR); also by appointment

Required Text: Essentials of Investments by Zvi Bodie, Alex Kane, and Alan Marcus, 5th Edition, McGraw Hill.

Supplementary Material: The Wall Street Journal

Course Objectives:

The course has two separate but inter-related objectives. The first objective of the course is to introduce the student to modern investment theory and practice. The student will first learn the structure and operation of equity and debt markets. Next, the impact of taxes and inflation on assets will be studied. We shall cover the intertwined issues of market efficiency and its implications, the theory and practice of stock and bond portfolio management, portfolio performance evaluation, the Capital Asset Pricing Model and the Arbitrage Pricing Theory. Finally, we shall discuss financial analysis of common stocks and the importance of dividends and earnings in valuation.

The second objective is to provide the student an opportunity to engage in research typically generated and utilized in financial decision-making. During the course, the student will work on a research project, individually as well as collaboratively. Further details on the project are given under the heading “Research Project” below.

The course entails some degree of quantitative rigor. Some statistical and mathematical background is required to understand the principles of investments including portfolio management, asset-pricing theories, market efficiency. A list of important mathematical and statistical concepts, that the student should already be familiar with, is given at the end of this syllabus. The course may be useful in making personal investment decisions, but is primarily designed to build a solid foundation in investment principles.

Mode of Instruction

The classes will be conducted in a lecture and discussion format. Given the quantitative rigor of the course, students will be strongly advised to read the assigned material for the class thoroughly before coming to the class. Although there is no separate grade for class participation, all students are expected to actively participate in the class discussion. Poor involvement in class discussions will lead to difficulties in satisfactorily completing the project and in performing well in the examinations.

Examination and Grades

Your course grade will be calculated on the basis of your performance in the following segments. The quizzes will be in-class and will test your knowledge of the topics under discussion. The final examination will be based on the material covered/assigned in the class. In addition, the project will require periodic submissions by the students. The dates for the project submissions will be announced in the class. To motivate submission of project assignments in time, late submissions will be penalized. It is impossible to construct a makeup test identical to the original in difficulty and content and to administer it under equivalent conditions. Therefore, NO MAKEUP TESTS/QUIZZES AND INCOMPLETES WILL BE GIVEN. Please ensure that you are present for the quizzes/exams as scheduled.

|Segment |Marks |Due Date |

|Project |250 |Periodic submissions |

|Quizzes |540 |Periodic |

|Final Examination |210 | |

|Total |1000 | |

This course satisfies the undergraduate research requirement of the School of Business. Consequently, the student must earn a grade of “C” or better, both in the course and in the project, to successfully complete this requirement. As the project is an integral part of the course, the student will be assigned a grade of “D” at best if an acceptable final report is not submitted.

Research Project

The research project will be done in the following three segments. All segments will be done in a team of three students although each student will have individually identifiable parts in the first and the last segments. I shall announce the submission date for each segment of the project in class. The first two segments will carry 80 points and the last segment carries the remaining 90 points.

1. Calculation of stock returns, summary statistics, estimating the market model and hypothesis testing

2. Computing the efficient frontier with and without short-selling

3. Portfolio Performance Evaluation

A spreadsheet program would be sufficient for the purpose of data analysis and is highly recommended as a great majority of finance companies view proficiency in spreadsheet programs as an entry-level requirement. Finally, students will report their findings, their implications for financial decision-making and limitations of the study in a form of a report. Each report segment should typically be around 3-6 pages of running text (attachments extra). However, it you wish to write more to explain yourself clearly, please feel free.

The report submission will be subject to the School of Business Fatal Error Policy. If you are not familiar with this policy, please see the GBA 300 syllabus online. All reports must be first taken to the Writing Lab before being submitted. Reports that have not been taken to the Writing Lab will not be accepted. Standard university policies and procedures will apply for suspected cases of plagiarism.

Schedule

We shall cover the following topics sequentially. I shall discuss the research project with the teams periodically and supervise the completion of various modules. I expect report writing to be an ongoing process where the report will be updated and submitted at the completion of each module.

|1 |Investments: Background and Issues |

|2 |Financial Instruments |

|5 |Risk and Return: Past and Prologue |

|6 |Efficient Diversification |

|7 |Capital Asset Pricing and Arbitrage Pricing Theory |

|8 |The Efficient Market Hypothesis |

|20 |Performance Evaluation and Active Portfolio Management |

|3 |How Securities Are Traded |

|4 |Mutual Funds and Other Investment Companies |

|17 |Investors and the Investment Process |

|18 |Taxes, Inflation, and Investment Strategy |

|19 |Behavioral Finance and Technical Analysis |

|9 |Bond Prices and Yields |

|10 |Managing Bond Portfolios |

|17 |Investors and the Investment Process |

|18 |Taxes, Inflation, and Investment Strategy |

|19 |Behavioral Finance and Technical Analysis |

|21 |International Investing |

|11 |Macroeconomic and Industry Analysis |

|12 |Equity Valuation |

|13 |Financial Statement Analysis |

Conceptual Prerequisites

You must clearly understand the following statistical concepts taught in MS 251 – Expected Value, Variance, Standard Deviation, Covariance, Correlation, Normal Distribution, Regression, and Hypothesis Testing. If you are unsure about these concepts, I strongly recommend working on these again in your own time. Otherwise, you might experience problems following the material in the class. Also, you should be familiar with spreadsheets to successfully complete your project.

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