UNIVERSITY OF MASSACHUSSETS DARTMOUTH College of Business Department of Accounting and Finance Fall 2016 COURSE: FIN 484, Advanced Investment Analysis, Online section PREREQUISITES: FIN 383 Investment Analysis INSTRUCTOR: menu Duong Nguyen, Ph.D., CFA, FRM Office Room 220, College of Business Phone (508) 999 8070 Email dnguyen2@umassd.edu and Course messages tool on Course OFFICE HOURS: The course is 100% online COURSE DESCRIPTION The purpose of this course is to introduce the student to the theory and practice of portfolio management. Topics will include evaluation of options, futures, other derivatives, equity securities, bonds, and international investments. The course builds upon the material that was covered in FIN 383. Specifically, we will cover options, futures, and other derivatives, different derivatives strategies for hedging and speculative purposes, fixed income securities and strategies, efficient markets theory, modern portfolio theory, asset pricing models, portfolio management strategies, and portfolio performance evaluation. Attention will be given to techniques used in building, managing, and evaluating the performance of portfolios of securities. Equity portfolio construction will be analyzed through problems, assignments, and the study of research findings. Bond portfolio management techniques will also be presented. The quantitative material will draw heavily on college level algebra and statistics. You will find this class quite challenging if your algebra and statistics skills are not up to par. COURSE OBJECTIVES The objective of this course is to discuss the material of practical use for students whether they plan to pursue a career of an investment professional or want to be a sophisticated individual investor. Here are some of the learning outcomes for the course: 1. To understand basic concepts of options, option strategies, options markets 2. To understand option valuation using various approaches: Black-Sholes model, binomial option pricing
3. To understand futures contracts, futures markets, futures strategies 4. To understand futures, swap and risk management 5. To understand bond, bond prices, yield 6. To analyze bond strategies: active and passive 7. To calculate the expected and historical rates of return for an individual asset or a portfolio of assets. 8. To calculate the risk of an individual investment or a portfolio. 9. To understand the factors which determine the required rate of return for an investment. 10. To understand the role of asset allocation in investment planning, and to understand why investment goals change over a person s lifetime and circumstances. 11. To understand the advantages of global diversification. 12. To understand the Markowitz portfolio theory. 13. To understand theoretical pricing models such as the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT) 14. To construct efficient frontier using a set of stocks 15. To understand portfolio performance evaluation COMPETENCIES AND CONTACT HOURS The student will be introduced to: The profession of investments and opportunities for investment personals 1 The student will understand: Nature of investments and investment alternatives 2 Relationship between risk and return from investments 6 Portfolio selection and capital market theory 6 Market efficiency 3 Valuation of Bonds and Stocks and investment strategies 6 Options, Futures and Risk management 6 Fundamental and Technical analysis 6 The student will be able to: Analyze stocks and bonds and make recommendation for investments 6 Construct portfolios with desired risk and return characteristics 3 Total 45 TEXTBOOK AND REQUIRED MATERIALS 1. Textbook and Connect The required textbook is Essentials of Investments, 9 th Edition by Zvi Bodie, Alex Kane, Alan Marcus Connect Registration is required in order to do the homework and exam for the class. Go to the link in the registration card I attach here to register. http://connect.mheducation.com/class/d-nguyen-fin-484-fall-2016
The price for an ebook + Connect is $130. 2. Financial Calculator (required) (Texas Instruments BA II Plus or TI 83, recommended) 3. Stock Trak registration (required) 4. Wall Street Journal (required) Communication Plan Email All email for the course should be through the email on this mycourses site. Email should be used for personal or private issues. For example, if you have an emergency and have to miss an assignment you should email me. (General course questions should be through the general discussion board.) I will respond to email within 24 hours during the week and 48 hours on weekends. General Discussion Board In addition to the discussion assignments you will be participating in for each chapter, I have set up a general discussion board where you can post any course related questions (that are NOT of a personal or private nature). For example, if you have a question regarding instructions on an assignment you should use the general discussion board to post your question. Others in the class may have the same question and this way everyone in the class can benefit from the answer. Additional Communication Guidelines Help me understand the purpose of your communication and reply to you quickly being sure you do the following when sending an email or posting a discussion message. Subject Lines should be meaningful: You should have a clearly stated topic (Example: Question on Due Date for a practice quiz). Attached Files: Electronic files must be named in the following format in order to receive credit: Assignment name, Your Last name, Your First name (Example: Stock-Trak Project Smith Joseph) Announcements Throughout the semester I will use the announcement tool in mycourses to send you course information. In addition, at times, I may also be using email to send out course information so you should check your mycourses email frequently. The Online Weekly Schedule Electronic weeks begin on Monday and ends on Sunday. Day 1 - Monday Day 2 - Tuesday Day 3 - Wednesday
Day 4 - Thursday Day 5 - Friday Day 6 - Saturday Day 7 Sunday TENTATIVE COURSE SCHEDULE Meeting Week 1 09/07-09/19 Week 2 09/19-02/26 Week 3 09/26-10/03 Week 4 10/03-10/10 Week 5 10/10-10/17 Week 6 10/17-10/24 Week 7 10/24-10/31 Week 8 10/31-11/07 Topic Class introduction Stock Trak Registration Reading chapter 15: Options Markets and lecture slides Homework 1 is due Reading chapter 16: Options Valuation and lecture slides Trading in Stock-Trak: Option strategies (cont.) Homework 2 is due Reading chapter 17: Futures Markets and lecture slides Trading in Stock-Trak: Futures strategies Homework 3 is due Review for exam 1 (chapter 15, 16, 17) Do problem set 1, 2, 3 and review their solutions Review homework 1, 2, 3 Take exam 1 Reading chapter 10: Bond Prices and Yields Trading in Stock trak Homework 4 is due Reading chapter 11: Managing Bond portfolios Trading in Stock trak Homework 5 is due Reading chapter 8: Efficient Market Hypothesis Trading in Stock-Trak Reading chapter 9: Behavioral finance and technical analysis Trading in Stock-Trak Homework 6 is due
Week 9 11/07-11/14 Week 10 11/14-11/21 Week 12 11/21-11/28 Week 13 11/28-12/05 Week 14 12/05-12/12 Week 15 12/12-12/19 Review for exam 2 (chapter 8, 9, 10, 11) Do problem set 4, 5, 6 and review their solutions Review homework 4, 5, 6 Take exam 2 Reading chapter 13: Equity valuation Homework 7 is due Reading chapter 18: Portfolio performance valuation Homework 8 is due Reading chapter 19: Globalization and International Investing Homework 9 is due Reading chapter 20: Hedge Funds Homework 10 is due Review for exam 3 (chapter 13, 18, 19, 20) Do problem set 7, 8, 9, 10 and review their solutions Review homework 7, 8, 9 and 10 Take exam 3 Submit Stock-Trak project Methods of Instruction Evaluation and Grading Breakdown: Exam 1: 21% Exam 2: 21% Exam 3: 21% Homework 18% (1.8% each) WSJ assignment 2% Participation: 2% Stock Trak Project 15% Total : 100% Your grade will be based on the following schedule A+ (99-100); A (93-98); A- (90-92); B+ (85-89); B (80-84); B- (77-79); C+ (73-76); C (65-72); C- (60-64); D+ (55-59); D (50-54); F (0-49) All the homework and exams are done on Connect. Also, I will be posting the problem set with questions that are useful for you to review materials and prepare for the homework and exams. There is no credit for problem set, however, it is important that you do them and review the solution since they will be useful for you to do the exam and homework.
Participation grade is 2%. To get this 2%, you need to post a message on the discussion board to introduce yourself to the class, register for Stock Trak, register for Connect, and register for the WSJ by the end of the first week. You need to register for Connect individually to do the homework. For each homework on Connect, you will have 3 attempts to do. The highest score of the 3 attempts will be counted as the final homework grade Incomplete Policy According to the university catalogue, an incomplete may be given only in exceptional circumstances at the instructor's discretion. The student must be passing at the time of the request or be sufficiently close to passing. If the work is not completed within one year of the recording of the incomplete grade, the grade will become an F(I). The incomplete policy for this course is that at least 70% of the course must be already completed and an exceptional circumstance (i.e. medical issue) must exist. If you feel you require an incomplete for an exceptional reason, you need to email me and state your reasons for the incomplete in writing. We will then decide on a course of action. http://www.umassd.edu/nfi/teachingandadvising/coursesyllabus/sampleincompletestatement/ Student Academic Integrity Policy All UMass Dartmouth students are expected to maintain high standards of academic integrity and scholarly practice. The University does not tolerate academic dishonesty of any variety, whether as a result of a failure to understand required academic and scholarly procedure or as an act of intentional dishonesty. A student found responsible of academic dishonesty is subject to severe disciplinary action which may include dismissal from the University. The procedure for responding to incidents of academic dishonesty may be found in Section III of this document. You may also refer to the Student Handbook for information about the judicial process. A high standard of academic integrity promotes the pursuit of truth and learning and respect for the intellectual accomplishments of others. These are values that are fundamental to the mission of this University. Such values are undermined by academic dishonesty. Academic freedom is a fundamental right in any institution of higher learning. Honesty and integrity are necessary preconditions of this freedom. Academic integrity requires that all academic work be wholly the product of an identified individual or individuals. Joint efforts are legitimate only when the assistance of others is explicitly acknowledged and deemed appropriate by the instructor of the course. Ethical conduct is the obligation of every member of the University community, and breaches of academic integrity constitute serious offenses. Maintenance of the standards of academic integrity and the successful administration of this policy depend on the mutual cooperation of faculty and students.
Faculty cooperation is essential for successful application of the procedures defined by this Academic Integrity Policy. Faculty members promote academic integrity by making clear on their syllabi their expectations concerning homework assignments, collaborative student efforts, research papers, examinations, computer-based infractions, and the like. Efforts should be made to detect and to prevent cheating and plagiarism in all academic assignments. If faculty members have evidence of academic dishonesty, they are expected to report such evidence promptly. Students must assume responsibility for maintaining honesty in all work submitted for credit and in any other work designated by the instructor of the course. Students are also expected to report incidents of academic dishonesty to the instructor or dean of the instructional unit. The intent of this policy is to make clear the standards of academic integrity at UMass Dartmouth. *For additional information on violations, infractions, and consequences visit the UMass Dartmouth Student Academic Integrity Policy at the link below. http://www.umassd.edu/studentaffairs/studenthandbookintroduction/studentconductpolicies/academ icintegritypolicy/ Center for Access and Success In accordance with University policy, if you have a documented disability and require accommodations to obtain equal access in this course, please meet with the instructor at the beginning of the semester and provide the appropriate paperwork from the Center for Access and Success. The necessary paperwork is obtained when you bring proper documentation to the Center, which is located in Liberal Arts, Room 016; phone: 508.999.8711. http://www.umassd.edu/dss/ Resources Links to all student resources can be found at: http://www.umassd.edu/extension/studentresources/ Tutoring If you are having difficulty with the class please: Post a message on the Discussion Board be sure to use your classmates for troubleshooting and problem solving. Make an appointment to come in and meet with me during my office hours. Contact the Academic Resource Center (ARC) for support: Academic Resource Center, Liberal Arts Room7 Phone: 508.999.8708, Fax: 508.910.6404
Technical Help If you are in need of technical assistance, please visit the link below for a list of technical support resources. http://www.umassd.edu/extension/technicalresources/ Students living in the Residence Halls may also contact the Residential Technology (ResTech) Support Center: Visit ResTech in Elmwood Hall, lower level Call the ResTech Help Line at 508.999.8040 (x8040)
Stock-Trak Project In order to gain some valuable insights about investment, you will be required to work in a team of no more than two in managing a simulation portfolio of $1,000,000 via Stock-Trak. The objective of this assignment is twofold. One is to develop an understanding of futures and options contracts traded in the domestic capital markets, and the uses of those contracts. To that end each student will be required to trade options and futures contracts through Stock-Trak. These contracts will be traded within the context of an investment strategy not just for the purpose of completing an assignment. Thus, the choice of contract and timing of the transaction are important. Second is to evaluate the performance of your portfolio and compare with the market and professional investors in the context of both regular return and risk-adjusted return. This is a group experiential learning assignment. The object of the exercise is to participate in the market, and it is assumed that to fully immerse yourself in this learning experience you need to actively participate in the market throughout the simulation trading period. Dividing the syndicate s funds equally among the syndicate members and then working independently to complete the assignment is not consistent with the purpose of the assignment and is not an acceptable trading strategy. Evaluation will not be based on the performance of the portfolio. However, groups that wait to the end of the semester to complete the required trades will be marked down. The Stock-Trak account will allow you to buy, sell, buy on margin, and sell short most common stocks, stock options, and mutual funds. You can also buy and sell certain index options, bonds, futures, and international stocks. In addition, Stock-Trak allows the possibility to place market orders, limit orders, and stop orders. The maximum number of trades is limited to 200. This simulation is set up for the 12 weeks of class. https://www.stocktrak.com/public/members/registrationstudents.aspx?p=umd-fall2016 The price is $29.95 per account. Use the discount code BKM808 when you register to get $5 off. The final price after discount is $23.95. Trading can begin on Sep 7 th and will end on Nov 30 th At the end of the semester, you are required to submit a written report which should include the followings: 1. During the course of the semester you may trade any of the derivative instruments available on Stock-Trak, however you must: Establish speculative positions using both call and put options written on individual shares of stock. Establish speculative positions using both long and short positions in stock index futures contracts.
Establish speculative positions using both long and short positions in commodity futures contracts. Create a protective put using options written on an individual share of stock. Create a covered call using options written on an individual share of stock. Create a long straddle using options written on an individual share of stock. Create a short straddle using options written on an individual share of stock. Create a bull spread with call options written on an individual share of stock. Create a bear spread with put options written on an individual share of stock. Create a collar using options written on an individual share of stock. The trades required to satisfy this part of the assignment may not be reversing trades. That is, you may not count the sale of an option/futures contract that closes a position as a short position. There is also no double counting allowed. That is, for example, the trades made to establish a straddle cannot be consider as speculative positions in options. You should provide a written description of what you do to create these positions above. What are the reasons (or benefits) to create such positions? Please explain, identify and link the trades and the trading strategies, e.g., the positions taken to establish the bull spread, the date of the transactions (the date the securities were purchased / sold), the securities traded, the ticker symbols of the securities traded, etc. I must be able to read the discussion of the trade in the written report and easily find the trade in your transaction history, or no credit will be awarded for the trade. I do not want to have to hunt for your trades in your transaction history. 2. Trader s Responsibility: it is the trader s responsibility to confirm that the requested trades are completed, and to complete the required transactions. For example, if you wanted to buy a call and a put to establish a straddle and Stock-Trak sold a put and bought a call, it is the trader s responsibility to fix the problem. Including a statement in your report saying, we sent the order, but Stock-Trak did not execute the trade, is not acceptable. You can buy/sell call, put directly on the Stoc-Trak website, but if you need to exercise the options, you have to call the Stock-Trak company, they will exercise the options for you. 3. The second part of the project is an exercise to experience with evaluating your investment portfolio using both regular return and risk-adjusted return. As usual, over the course of the trading period, make at least 30 transactions (on top of the transactions required above) to buy, sell, short sell, and short cover common stocks, bonds, mutual fund, derivatives, etc. You should have built up some stock picking ability by now. You should print out the transaction history from your account with Stock-Trak and include it in the report
4. Calculate your portfolio return every week and compare with the return on the market index S&P 500. Put the information in Excel. You need to graph your portfolio return and the S&P 500 index return. The y-axis is the return, the x-axis is the week. date Week Porfolio Value Portfolio Return S&P 500 S&P 500 return Sep 10 0 1,000,000 - - - Sep 17 1 Sep 25 2 Oct 2 3 Oct 9 4 Oct 16 5 Oct 23 6 Oct 30 7 Nov 6 8 Nov 13 9 Nov 20 10 Nov 28 11 The return is calculated as follows Return in week 1 = (ending value beginning value)/beginning value = (Sep 17 Sep 10)/ (Sep 10) Return in week 2 = (ending value beginning value)/beginning value = (Sep 25 Sep 17)/ (Sep 17) and so on. (to get the historical data on S&P 500, go to Yahoo Finance webpage, and download the historical data corresponding to your trading period and compute the weekly return of S&P500. The value you should get for S&P500 is the adj. close, the last column on the website) Graph your portfolio performance with the index 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% 0 2 4 6 8 10 12 My R eturn S &P R eturn -3.00% -4.00% -5.00%
7. Find your portfolio beta (systematic or market risk), alpha (risk-adjusted return) using SP500 to proxy for market return. Estimate the degree of diversification of your portfolio, i.e., how many percent will be systematic risk, how many percent will be unsystematic risk? Is your portfolio diversified enough? We will study how to do this during the semester. 8. Based on all the calculations so far, write an essay evaluating the performance of your portfolio over the trading period. How does your portfolio compare with the market? How does it compare with professional investors, Is it better or worse? Compare both regular return and risk-adjusted return, the amount of risk, degree of diversification. What transactions you earn a lot of return, what transactions you lose a lot of money, what else you should have done to improve your performance, what lessons in derivative securities, stocks, and bonds you have learned during this portfolio simulation so you can apply to your personal investing in the future, etc.). You should include an analysis of macroeconomics, industries, financial markets, stock-specific news, events that may have affected the risk and return performance of your portfolio While I would encourage you to work in a group, if you choose to work on your own, your project report tends to be graded more favorably than a report of a group of 2 members since there is a lot of work involved. There is no penalty for getting low returns, however, top 2 accounts whose returns are highest in the pool (all classes combined) and have at least 50 transactions will have 3% bonus added to the total grade (satisfy both requirements: top 2 accounts and 50 transactions