Lahore University of Management Sciences. FINN 353 Investments Spring Semester 2018 (Tentative Under review)

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1 FINN 353 Investments Spring Semester 2018 (Tentative Under review) Instructor Arslan Shahid Butt Room No. SDSB 437 Office Hours Monday & Wednesday 10 Am 12 Pm Other times by appointment Telephone Secretary/TA Muhammad Umar/TBA TA Office Hours TBA Course URL (if any) suraj.lums.edu.pk/~ro/ COURSE BASICS Credit Hours 3 Lecture(s) Nbr of Lec(s) Per Week 2 Duration 75 Minutes Recitation/Lab (per week) Nbr of Lec(s) Per Week Duration Tutorial (per week) Nbr of Lec(s) Per Week Duration COURSE DISTRIBUTION Core Elective Elective Open for Student Category SDSB(Juniors & Seniors), ACF Senior & Junior in Phase II Close for Student Category COURSE DESCRIPTION An introductory course in the analysis of investments and portfolio management. The course examines various investment opportunities available in modern financial markets, functioning of securities markets, diversification concepts, asset pricing models, analytical techniques for valuation of stocks and fixed income securities using fundamental and technical analysis, portfolio construction and evaluation, and introduction to derivative securities. Central to the investment selection and management process is the notion of portfolio diversification. We will consider how investors allocate their funds by forming and managing portfolios containing stocks, bonds, mutual funds, and alternative investment products. Students are also introduced to the major portfolio management strategies and investment styles pursed by professional investors. An investment game will be played to give students a better understanding of trading strategies and portfolio management. The course focus is on application of theory to the practice of investment management. COURSE PREREQUISITE(S) FINN 100 Principles of Finance COURSE LEARNING OUTCOMES (CLO) Upon successful completion of the course, students should be able to: 1. Demonstrate understanding of the nature and operations of capital markets and trading of securities and other investment vehicles. 2. Demonstrate understanding of the theoretical underpinnings of investment analysis and portfolio concepts within the context of modern portfolio theory and its extensions. 3. Demonstrate understanding of procedures involved in analyzing investment alternatives under conditions of uncertain outcomes. 4. Demonstrate application of empirical evidence, theoretical constructs, and insights from practice to manage investments.

2 Lahore University of Management Sciences Demonstrate understanding of the alternative methodologies to evaluate portfolio performance. Demonstrate knowledge of derivative markets and instruments with special attention to their application in managing portfolio risk. Present and defend their analysis effectively, both in oral and written forms, while working in teams as well as independently. (General Learning Goal) UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES General Learning Goals & Objectives Goal 1 Effective Written and Oral Communication Objective: Students will demonstrate effective writing and oral communication skills Goal 2 Ethical Understanding and Reasoning Objective: Students will demonstrate that they are able to identify and address ethical issues in an organizational context. Goal 3 Analytical Thinking and Problem Solving Skills Objective: Students will demonstrate that they are able to identify key problems and generate viable solutions. Goal 4 Application of Information Technology Objective: Students will demonstrate that they are able to use current technologies in business and management context. Goal 5 Teamwork in Diverse and Multicultural Environments Objective: Students will demonstrate that they are able to work effectively in diverse environments. Goal 6 Understanding Organizational Ecosystems Objective: Students will demonstrate that they have an understanding of Economic, Political, Regulatory, Legal, Technological, and Social environment of organizations. Major Specific Learning Goals & Objectives Goal 7 (a) Program Specific Knowledge and Understanding Objective: Students will demonstrate knowledge of key business disciplines and how they interact including application to real world situations. Goal 7 (b) Understanding the science behind the decision making process (for MGS Majors) Objective: Students will demonstrate ability to analyze a business problem, design and apply appropriate decision support tools, interpret results and make meaningful recommendations to support the decision maker Indicate below how the course learning objectives specifically relate to any program learning goals and objectives. PROGRAM LEARNING GOALS AND COURSE LEARNING OBJECTIVES COURSE ASSESSMENT ITEM OBJECTIVES Goal 1 Effective Written and Oral Communication Students will be given a number opportunities to demonstrate their ability to communicate effectively (CLO #7) CP, Project write up & presentation, Exams Goal 2 Ethical Understanding and Reasoning Goal 3 Analytical Thinking and Problem Solving Skills Goal 4 Application of Information Technology Goal 5 Teamwork in Diverse and Multicultural Environments Goal 6 Understanding Organizational Ecosystems Analytical Thinking and Problem Solving Skills are an essential component of the course (CLO 1 7) Application of information technology in for assignments, projects Students work in groups for group projects Develop student s understanding of the interaction of micro (firm specific) variables with the macro (securities markets, industry, and the economy) variables CP, Quizzes and exams Project write up & presentation Group project CP, Project write up & presentation, Exams, quizzes

3 Goal 7 (a) Program Specific Knowledge and Understanding Goal 7 (b) Understanding the science behind the decision making process A detailed introduction to the various of topics in Investments (CLO 1 6) CP, quizzes and exams GRADING BREAKUP AND POLICY CLASS ROOM POLICY Attendance and Class Participation: 10%. Students are expected to attend all classes. If you are not present at the beginning of a class or leave class during the session, without instructor s prior permission, you will be considered absent for the day. Students must review the assigned materials in advance of the class in order to contribute meaningfully to class discussions. A significant portion of the course grade depends on the quality and level of your involvement and input in class discussions. POLICY REGARDING EXAMINAIONS QUIZZES AND OTHER GRADING INSTRUMENTS. There is a zero tolerance policy for any undesirable behavior or undeserving attempt to improve your grades during the quizzes and examinations. Such action can result in cancelling your examination paper. It may also result in disciplinary actions by Disciplinary Committee. Please carefully weigh in your action s costs and benefits and always show an ethical and moral deportment and behavior. Quiz(s) and Assignments: 20%. Several unannounced quizzes will be given on the assigned material during the term. No make up quizzes will be given. However, the lowest quiz grade including a zero for a missed quiz will be disregarded. No sharing of calculators, or any help sheet be allowed. There will be several graded assignments during the term to reinforce financial concepts and to encourage usage of spreadsheets such as Excel in performing financial analysis. The format and other requirements will be specified by the instructor. All assignments must be submitted on the due date. Late submissions will not be accepted. In addition, non graded end of chapter problems may be assigned to stimulate class discussions. Midterm Examination: 20% The examination could be mix of MCQ short exercise and short explanations. There is a zero tolerance for any undesirable behavior to undeserving attempt to improve your grades during the quizzes and examinations. Group Projects 25%: Students are required to form teams of 3 4 students (depending on class size) by session 4 for group tasks. (i) Sector Report: Each group will select an industry sector/subsector and perform industry and fundamental analysis of at least 2 leading companies in that sector. The sectors for the analysis must be approved by the instructor. The sector analysis reports will be due at the beginning of the 27 th class session. Late submissions will not be accepted. A peer evaluation form will be provided to evaluate contribution of each group member. Your peer evaluation will impact your grade on the project report. (ii) Investment Game: Each group will be entrusted with the same amount of initial investment and will be asked to manage a portfolio of stocks on behalf of a client for a certain amount of time. Portfolio performance will be evaluated on the basis of total return at the end of the game. (iii) Money Masters Report: Multiple teams will be assigned an investment guru from the Money Masters to prepare a brief writ up and be ready for a presentation on the assigned person as per the class schedule. The presentation should focus on the investment strategies, investment insights (Dos and Don ts of investments), including key personal traits. Students are encouraged to use the Internet to obtain more current information. FINAL EXAMINATION: 25%. The examination could be mix of MCQ short exercise and short explanations. Students may also expect a question or two from the assigned report or a case or a situation analysis. Calculator Requirement: You will need a financial calculator capable of performing present value/future value functions. For

4 example, Texas Instrument BA II meets these criteria. Many other brands are equally suitable for this course. EXAMINATION DETAIL Midterm Exam Final Exam Yes/No: Yes Combine Separate: N/A Duration: 2 Hours Preferred Date: Week 8 Exam Specifications: Yes/No: Yes Combine Separate: N/A Duration: 2 Hours Exam Specifications: COURSE OVERVIEW LECTURE/ MODULE TOPICS RECOMMENDED READINGS Module 1: Overview of Investment Environment and Management Process Session 1 Investments: Backgrounds and Issues BKM Ch 1,2 Asset Classes and Financial Instruments Session 2 Asset Classes and Financial Instruments: Stock and Bond BKM Ch 2 Market Indexes Session 3 Session 4 Session 5 Session 6 Functioning of Security Markets and Trading Mechanisms Functioning of Security Markets and Trading Mechanisms Mutual Funds and Other Investment Companies Mutual Funds and Other Investment Companies Pakistani Context The Investment Management Process BKM Ch 3 BKM Ch 3 BKM Ch 4 BKM Ch 4 BKM Ch 22 OBJECTIVES/ APPLICATION Overview of investment environment, type of financial markets, and introduction to the portfolio construction process. Examine the various asset classes, instruments, and understand the use and construction of market indexes. Review the functioning of financial markets and its key players. Understand the trading practices in stock exchanges and mechanics of buying on margin and short selling. Examine the benefits of investing through investment companies, classification of mutual funds by objectives and styles, fee structures, and performance. Review the mutual funds industry of Pakistan. Overview of the portfolio management process. Session 7 The Investment BKM Ch 22 Learn to develop Investment

5 Management Process Policy Statement (IPS) for individual and institutional investors. Session 8 Session 9 Macroeconomic and Industry Analysis Macroeconomic and Industry Analysis Applications of Fundamental Analysis BKM Ch 12 BKM Ch 12 Analyze the effects of macroeconomic and industry factors on firm performance and industry earning prospects over time. Understand the relevance of macroeconomic and industry factors in fundamental analysis the Top Down approach. Session 10 Equity Valuation Discounted Cash Flow Models Session 11 Session 12 Session 13 Session 14 Session 15 Session 16 Session 17 Equity Valuation Other Valuation Approaches Risk and Return: Past and Prologue Efficient Diversification Diversification and Portfolio Risk Single Index Model and Beta Estimation Capital Asset Pricing and Arbitrage Pricing Theory The Efficient Market Hypothesis (EMH) EMH Implications for Portfolio Strategies Behavioral Finance and Technical Analysis Session 18 Technical Analysis Momentum Trading BKM Ch 13 BKM Ch 13 BKM Ch 5,6 BKM Ch 6 BKM Ch 7 BKM Ch 8 BKM Ch 8 BKM Ch 9 BKM Ch 9 Apply discounted cash flow models and alternative approaches to value securities. Examine relative and other security valuation methodologies. Review historical risk return relationship, modern portfolio theory, and estimation of risk measures. Develop understanding to construct optimal portfolios, and use index models to analyze risk characteristics of securities and portfolios. Understand the implications of capital market theory for asset pricing, use security market line, APT and multifactor models to identify mispriced securities. Review empirical evidence that supports and conflicts with the efficient market hypothesis. Evaluate the implications of EMH for portfolio management strategies. Review the behavioral finance critique of standard finance and its relevance for investments. Overview of technical analysis tools and mechanics of momentum trading. Session 19 Bond Prices and Yields BKM Ch 10 Develop understanding of the bond markets, pricing and yield determination, and how different bond features impact

6 bond yields. Session 20 Managing Bond Portfolios BKM Ch 11 Analyze bond features impacting price sensitivity to interest rates using duration and convexity measures. Session 21 Managing Bond Portfolios BKM Ch 11 Evaluate active versus passive bond portfolio strategies and immunization for various investment horizons. Session 22 Session 23 Session 24 Session 25 Session 26 Session 27 Session 28 Final Examination (Comprehensive) Portfolio Performance Evaluation Globalization and International Investing Overview of Options Markets Futures Markets and Risk Management TEXTBOOK(S)/SUPPLEMENTARY READINGS Required Text: BKM Ch 18 BKM Ch 19 BKM Ch 15 BKM Ch 17 Presentations Understand various riskadjusted measures to evaluate performance and decompose portfolio return into components attributable to asset allocation and security selection. Examine the benefits and risks of international portfolio investments with special reference to emerging markets. Overview of the options market and their usage in changing the portfolio risk profile. Understand the use of derivatives in managing portfolio risk. Bodie, Kane, and Marcus, Essentials of Investments, 9 th Edition, McGraw Hill, (BKM) Selected readings from The Money Masters and The New Money Masters by John Train, 1980 and 1989, respectively. Other Reference Books: Reilly, Frank and Brown, K., Investment Analysis and Portfolio Management, 8 th Edition, Thomson South Western, ( RB selected chapters only) Malkiel, Burton, A Random Walk Down Wall Street: The Time Tested Strategy for Successful Investing, 10 th Edition, W. W. Norton & Company, Supplementary Readings: Students are encouraged to read financial publications such as The Wall Street Journal, Financial Times; Business Recorder to stay abreast of developments related to this course. Supplemental readings in the form of notes or articles on investments with practical and topical applications may be posted on the course website from time to time.