Course Syllabus FINA 5210: Investment Analysis & Mgmt Fall 2016

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1 Professor: Dr. John Kensinger BLB 336B (office) Office hours: 1:00-2:00 PM Wednesday 5:15-6:15 PM Monday Also available in classroom after class (please remain in the classroom if you want to see me after class) Class Time: BLB 281 6:30-9:20PM Monday Finance Tutor Lab: BLB Open Monday through Saturday Texts and Readings: 1. Zvi Bodie, Alex Kane, & Alan Marcus, Investments (10 th Ed.), McGraw-Hill (2014) ISBN Burton Malkiel, A Random Walk Down Wall Street (10th Ed.), WW Norton (2011) ISBN Burton Malkiel s book has been a best-seller for several decades, and is a joy to read. I suggest you read the whole thing right away, perhaps over the next weekend (it is great beach reading). Then refer back to ideas like market efficiency and modern portfolio theory as we come to them in the normal progression of the course. 3. Additional readings will be handed out as scheduled below. Most handouts are available for download at Catalog Description: Investment Analysis and Management: 3 hours. Economic and industry studies, company analysis, selection of senior securities, theory and application of common stock valuation models, security markets and timing, portfolio management, options and futures markets. Prerequisite(s): FINA 5170 or equivalent; ECON 1100 or 5000 or equivalent; MSCI 5180 or equivalent; ACCT 2030 or 5020 or equivalent; MATH 1190 or equivalent, or consent of department.

2 Disability Accommodation: The College of Business Administration complies with the Americans with Disabilities Act in making reasonable accommodation for qualified students with disability. If you have an established disability as defined in the Americans with Disabilities Act and would like to request accommodation, please see me as soon as possible. My office hours and office number are shown on this syllabus. Student Investment Group (SIG): The College of Business Administration has entered into an agreement that all students taking investment-related courses shall be strongly encouraged to participate in the Student Investment Group (SIG). The group manages an endowment to be used for future student scholarships. An article about the SIG from the Denton Record Chronicle (12/31/03, p.1a) is attached to this syllabus. Adequate participation is determined by the SIG membership and faculty advisors, and is reported to the faculty at the end of the semester. All students in FINA 5210 have opportunities to participate in the SIG via meetings of the organization, investment analysis for the portfolio management committee, and via the web resources the SIG sponsors. Students who have satisfactory participation in the SIG will receive five (5) bonus points on the final examination (this is equivalent to half a letter grade increment on the grading scale for this exam). For the latest information about the SIG and its activities, see the website at orgs.unt.edu/sig Purpose of the Course: The course is concerned with the concepts and techniques employed in placing capital into the global marketplace, in order to earn a competitive rate of return relative to risk. The role of the global financial markets in accomplishing an optimal allocation of economic resources around the world is a central issue. Students should finish the course with a much-improved understanding of the functioning of the interrelated global markets for securities, futures, options, commodities, and business units. The focus is on the tools and concepts needed by finance professionals, and may go beyond the needs of students primarily interested in managing their personal portfolios. Prerequisite Courses and Knowledge: Students should already have completed the core course in finance or its equivalent. Some of the course problem sets use compound interest calculations to develop advanced concepts, but the course is designed on the assumption that students are already familiar with the basic mathematics of compound interest and can operate a financial calculator. Likewise, the course is designed upon the assumption that students are already familiar with the basic definitions of security types. Calculators: You will need a financial calculator. This is the minimum standard among financial professionals, and a suitable one can be bought for less than the price of a textbook. For overall value per dollar in the current generation of calculators I suggest the Hewlett-Packard HP-17B (price from HP is $100). At the lower end of the HP line, the HP-10B offers all necessary capabilities for this course at an affordable price (price from HP is $30). If you can find one, the HP-19B offers the most advanced capabilities available in the calculator market (it s out of page 2 of 8

3 production now). In addition, the classic HP-12C is back in production, although it is not as advanced as the 10 or 17 (or as good a value). When ordering HP calculators, be sure you are getting the business version and not the science/engineering version. You may also want to consider the Texas Instruments (TI) BA-II Plus, since in-class demonstrations will use a projection version of this calculator. If you choose this route, you won t save much money, and you will give up in time much more than you save in dollars. A word of caution is in order: if you buy a used calculator be sure to get a complete instruction manual, otherwise you ll have a paperweight with great potential. You may be able to download a manual from the manufacturers website, but be sure to verify this before buying. If you are considering some other calculator you will need to be sure it can do all the financial calculations involving present and future value of single sums, annuities, uneven cash flows, interest rate calculations for single sums or annuities, and internal rate of return for uneven cash flows. (The TI-BA 35 Solar calculator does not have all the features needed for the course.) Calculators are required for examinations. Grading: Homework problem sets will not be graded. Course grades will be calculated using the following weights: Course Grade 20% Report 25% First Examination 25% Second Examination 30% Final Examination Scores on the exams will be converted to letter grades using the following guidelines: Grading Chart A: 90%-100% D: 60%-70% B: 80%-90% F: below 60% C: 70%-80% Makeup or re-scheduled exams will be allowed only with valid medical justification, because of some other documented personal emergency, or by prior arrangement to accommodate some other unavoidable conflict. Routine makeup exams must be completed prior to the next class meeting (to schedule the makeup, contact the Faculty Support Center, , CoB-FacSupCtr@unt.edu). In case of prolonged incapacitation that is documented, other arrangements will be tailored to fit the particular situation. A student who does not make up a missed examination or does not contact the instructor may be dropped for non-attendance. An optional grading formula may be selected at the time of the final exam. The option would allow reduction of the weight from 25% to 10% for any of the preceding exams (with offsetting increased weight on the final exam). This option is available upon request at the time of the final examination, with no other conditions except that choice of the optional grading formula cannot be changed after the fact. page 3 of 8

4 Cell phones must be turned off and put away during examinations. Absolutely no text messaging or wireless is allowed during examinations. Those leaving the examination room for any reason may not use cell phones and other wireless devices or discuss the exam with anyone while the examination is still under way. Report and Library Assignment: The report required for this course is a short paper (3 pages) reporting a golden investment opportunity you have found through diligent research (and that hopefully very few other people in the world have noticed yet). First, read the excerpts from Malkiel s book concerning the firm foundations theory and the castles in the air theory (this material is available on the class website). Think about the two theories and pick the one you want to use (for purposes of this report, I do not have a favorite). Then go to the library and familiarize yourself with the various investment information sources such as Moody s, Standard & Poor s, Predicasts, and Value Line. You will also find abundant information sources on the Worldwide Web. Combine this information with your own personal interests, pick an as-yet-undiscovered potential future blockbuster, tell which theory you are using (firm foundations or castles in the air), explain why you think the investment is great, discuss why others have not yet discovered it, and explain why others will soon be forced to notice it. As Malkiel points out, the best investment inspirations typically come when a market-savvy person finds something that arises from personal interests (for example, you may like to ski and know about a little company that makes wonderful skis). Your investment may take any form. It should be accessible to individual investors of average means (if it is not, you would need to include an explanation of the changes or reforms in the investment market that would be necessary in order to make it accessible). The report is due Monday, November 24 th. Tips on Study Management: Read all the appendices associated with assigned chapters. Familiarize yourself with assigned readings prior to the lectures. A good strategy would be to skim for a general grasp of the issues before the lecture, and then do your focused study afterwards. It is essential not to get behind, since the new topics build on past material. Problem sets are designed to stimulate class discussion and provide exercise in preparation for the examinations. They will not be graded in and of themselves. Give the problem sets your best shot before we discuss them in class, even though they will not be collected or graded. By all means, don t look at the solutions until you have given the problems your best shot. page 4 of 8

5 August 29: Topic 1: Course introduction. Class Schedule: Introduction to the game and its environment, with a review of the touchstones of finance Bodie: Chapters 1, 2, 4 Wall Street Journal video: Includes interviews with several well-known entrepreneurs. Watch closely for information on the following subjects: Acquisitions Initial Public Offering Investment Banking Private Financing Risk Allocation Role of Underwriters Strategic Alliances Strategic Management Valuation Venture Capital September 5: Labor Day Holiday (no class) Sept 12: Topic 2: Sept 19: Topic 3: Sept 26: Topic 4: Structure and efficiency of the financial markets Bodie: Chapters 3, 11, 12 Case Study: Tomago Aluminium Discounted cash flow models of security valuation, and theories to explain the term structure of interest rates Bodie: Chapters 14,15,16, 18 Problem Set 1: Security Valuation Problem Set 2: Coping with changing price levels Portfolio theory, the value additivity principle, and Tobin s separation theorem Bodie: Chapters 5, 6, 7, 8, 25 Oct 3: Topic 5: The Capital Asset Pricing Model (CAPM) and portfolio performance evaluation Bodie: Chapter Chapter 9, 24 Problem Set 3: Risk/Return analysis Oct 10: Topic 6: Arbitrage Pricing Theory (APT) Bodie: Chapter 10, 13 Oct 17: FIRST EXAMINATION (covers Topics 1 through 6 and Problem Sets 1, 2, 3) page 5 of 8

6 Oct 24 Topic 7: Commodities, futures, and forward contracts Bodie: Chapter 22, 23 Readings packet on futures (handout) Oct 31: Topic 8: Option Pricing Theory (OPT) Bodie: Chapters 20, 21 Problem Set 4: Futures, options, and arbitrage Nov 7: Topic 9: Portfolio insurance and arbitrage across markets Bodie: pp , Nov 14: Topic 10: Bond portfolio management, interest rate risk management, and arbitrage in the bond market Problem Set 5: Advanced problems in arbitrage Case Study: More Applications of Derivatives Nov 21: SECOND EXAMINATION (comprehensive, covers Topics 1 through 10 and Problem Sets 1 through 5) Reports due Nov 28 th Nov 28: Topic 11: More about arbitrage in equities Bodie: Chapters 17, 26, 27, 28 Topic 12: Agency costs and the good side of financial leverage Jensen, The Eclipse of the Public Corporation (handout) Chen, Conover, Kensinger, Proven Ways to Increase Share Value (handout) Dec 5: Dec 12 Case Studies: Corporate Restructuring Case Study: How Will the Investment Game be Better in the Future? Course review COMPREHENSIVE FINAL EXAMINATION (covers Topics 1-12 and Problem Sets 1-5) page 6 of 8

7 Denton Record Chronicle, 12/31/03, p. 1A Students learn to invest Real money, real experience 08:30 AM CST on Wednesday, December 31, 2003 By Matthew Zabel / Staff Writer An Austin man gave University of North Texas students $285,000 and an order: Don't invest it all in one place. UNT's Student Investment Group recently began buying its first blue-chip stocks and other safe securities, and members are anxious to see the portfolio grow. Col. Guy M. Cloud donated the money recently in order to form the investment group, which is open to all UNT students. "I think a lot of people don't know how to invest, and the university is one of the best places to learn how to invest in our competitive society," Cloud said. Students and their faculty advisers said they are thrilled they will have the opportunity to gain lessons investing real money, an experience that's worth much more than merely watching the markets. The student group formed last year and created an executive board. Since then, the members have been studying the markets to figure out how best to invest the money, which came in the form of a universal life insurance policy and an annuity. In November, the student board decided to cash in $50,000 of the annuity, which is worth about $74,000, and invest it in 12 blue-chip securities like Coca-Cola and General Electric. The group plans to invest the rest in the spring. The group chose nine securities at an October meeting. Then faculty members advised them to consider adding a few more. In November, the group voted to add three more. General Electric was one of them. "I'm glad the faculty pushed for G.E. That's a very diverse company," said Chris Carlson, a senior, who is also a member of a portfolio management committee. "It's not just light bulbs and X-ray machines." Board Chairman Jason Bottenfield said now that trading has begun, he expects students in the group to gain a lot of practical experience with the stock market. "We don't really get to apply the stuff we learn in school," said Bottenfield, a senior finance major. "It's all theoretical, but here we get to apply it and get experience with handling real money." The group plans to keep the life insurance policy, worth more than $200,000, intact for now until the group can study its options more. The policy value doubles when Cloud dies. page 7 of 8

8 The student board of directors must vote on how to manage the portfolio. Those votes are based on recommendations of the portfolio management committee, a smaller group of students that studies the securities and the markets. All the group's transactions need approval from faculty adviser Dr. Don MacDonald, an associate professor of finance. MacDonald and other members of the finance faculty offer suggestions to the group, but he makes it clear that he doesn't make the decisions; the students do. His main role is to make sure the group has followed the guidelines and bylaws laid out in the university's agreement with Cloud. "When they go out looking for a job, its easier for them if they can claim they have real experience handling real money," MacDonald said. The group also has access to the university's computer software that allows instant trading, MacDonald said. Emily Demars, a senior majoring in international studies, said she hopes to become involved in the global market, so the group is helpful for her. Because the investment group is still young and has only recently established its portfolio, the semester has been a little slow, "but it will be exciting once we get into it," she said. Cloud also initiated a $250,000 matching gift campaign to raise more money for the fund. A donor or a combination of donors must contribute at least $250,000, for him to match it. When the funds reach the permanent principle amount of $1 million, scholarships will be created for UNT students from the earnings and increase in value with the account. Professors in the College of Business also are working to raise money for a formal trading room and new equipment for the group to use. Now, the group meets in a classroom and has a small office for a trading room. Finance professors would like to see a trading room on the south end of the business building that would be large enough to hold the group's meetings and have plasma-screen computers for trading. Such a room would be a showcase for prospective students, they said. Bottenfield said the group, which has fewer than 100 active members, should grow faster now that the group is trading real money. Any student interested in investing is welcome in the group; students taking investment-related classes are especially encouraged to join. "This experience will help astronomically," said Bottenfield, who graduates in December. "I want to move into asset management, and to do that, I need to know how to read the stock markets. You only learn this by the osmosis of having the terminology used all around you." For more information about the investment group, the group at SIG@bottenfield.com or call Bottenfield at The group's Web site is orgs.unt.edu/sig. MATTHEW ZABEL can be reached at His address is mzabel@dentonrc.com. page 8 of 8