TEXAS CHRISTIAN UNIVERSITY M.J. NEELEY SCHOOL OF BUSINESS Finance 30233-30 Advanced Investments Fall 2015 MWF @ 11:00-11:50 am, Smith Hall 117
Associate Professor Steven C. Mann Office: Tandy Hall 386 Tel: 817 257-7569 Office Hours by appointment (send an email):
[email protected]
I. COURSE DESCRIPTION This course covers some of the most important topics in finance from an investment perspective. We begin with a review of equity valuation, portfolio theory and risk management through diversification. Once we’ve developed and/or solidified our tools for analyzing risk and return characteristics of equity securities, we will shift to analysis of securities with fixed income characteristics, generally described as bonds. Our analysis of fixed income securities will include analysis of forward rate structures and a review of interest rate term structure theory. Next we investigate derivative securities, including options, forwards, and swaps. We’ll conclude the semester by reviewing performance analysis and hedge fund strategies. II. COURSE MATERIALS Required Text: Investments, 10th edition, Bodie, Kane, and Marcus, 2014, Irwin/ McGraw-Hill. Text Webpage: http://www.mhhe.com/bkm Course Webpage: http://sbufaculty.tcu.edu/mann III. COURSE POLICIES Be prepared for class. Ideally, you will review the assigned material and work some problems (e.g. the “concept checks” in the text) prior to lectures, thus preparing you to ask questions during class sessions. Questions are highly encouraged. Grades will be determined as follows: Projects & Quizzes Midterm Examinations (Two exams: 250 points each) 1. Wednesday, October 7 2. Friday, November 20 Final Exam Total
10% 50%
100 points 500 points
40%
400 points 1000 points
Class participation and responsible behavior will influence borderline grades. Exams will consist primarily of problems, and while exams cover the reading assignments, lectures will be the primary focus. Make-up tests are only available for University-Excused Absences, and must be scheduled in advance. Students who wish to appeal their score on an exam should submit to me in writing a brief discussion of why more points are warranted. I will give the discussion serious consideration. However, I reserve the right to re-grade all questions.
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TENTATIVE Class Schedule, Fall 2015, Page 1 All readings in Bodie, Kane and Marcus, 10th ed. Week of:
Key Topics & Concepts
Readings
8/24
Market Structure, Short Selling Risk Premium (ex ante and ex post) Valuation: DCF & Comp Multiples
Chapter 3, Skim 3.6 & 3.7 Chapter 5: 5.1-5.6 Chapter 18: Skim
8/31
Index Models, Diversification and Risk Capital Asset Pricing Model (CAPM) “Alpha” and “excess returns” (ex ante & ex post)
Chapter 8: 8.1 - 8.3 Chapter 9: Review 9.1 Chapter 9: 9.2
9/7
Monday, 9/7 No Class: Labor Day Holiday Bond Prices & Yields Zero-Coupon Bonds, Bond Ratings Yield Spreads and Default Risk
Chapter 14: Skim All
9/14
Interest Rate Term Structure Spot Rates, Future Short Rates, Forward Rates
9/21
Interest Rate Term Structure Chapter 15: All Spot Rates, Future Short Rates, Forward Rates Spot Zero-Coupon Yield Curve, Spot Coupon Bond (Par) Yield Curve Forward Yield Curve, Expectations Hypothesis, Liquidity Premium Hypothesis
9/28
Interest rate Term Structure Continued Bond Portfolio Management Interest Rate Risk, Duration, Convexity “Immunization”, “Horizon Analysis”
Chapter 15: All Chapter 16: All
10/5
Monday: Review Wed: 10/7: First Midterm Exam, 250 points
Chapter 15 & 16
10/12
Monday 10/12: No Class, Midterm Break Holiday Option Basics Exchange-traded vs Over-the-counter, exercise, expiry Payoff vs. profit, payoff diagrams
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Chapter 15: All
Chapter 20: 20.1 – 20.4
TENTATIVE Class Schedule, Fall 2015, Page 2 All readings in Bodie, Kane and Marcus, 10th ed. Week of:
Key Topics
Readings
10/19
Option combinations & spreads, Put-Call Parity Financial Engineering & Exotic Options
Chapter 20.4 – 20.7
10/26
Option Valuation Binomial Models, Calibration and Volatility Risk-Neutral Probabilities
Chapter 21: 21.1 – 21.3
11/2
Option Valuation Binomial & Black-Scholes-Merton Models
Chapter 21: 21.4-21.5
11/9
Forward & Futures Contracts Forward curves Interest Rate Parity, Covered Interest Arbitrage Index Futures, Synthetic Asset Allocation
Chapter 22: 22.1-22.4 Chapter 23: 23.1-23:4
11/16
Index Arbitrage, Market-Neutral Strategies Chapter 23: 23.1-23:4 Wed: Review Friday, November 20: Second Midterm Exam (250 points)
11/23
Hedge Funds Chapter 26: All No Class Wed. 11/25 or Fri. 11/27: Thanksgiving Holiday
11/30
Hedge Funds, work on projects
12/7
Monday, Wednesday, Semester Review for Comprehensive Final Wed., 12/9: Last Day of Class
Chapter 26: All
Scheduled Final Exam: Wednesday, December 16 at 11:30 am
Reminder: Finance Major Exit Exam in FINA 40153 As part of the academic accreditation process, TCU Finance majors are required to take an Exit Exam in Advanced Financial Management (FINA40153). The test score will count 10% of your Advanced Financial Management course grade. To prepare for the test, a Study Guide for the Exit Exam can be found at this link: http://neeley.tcu.edu/Academic_Departments/Finance/Areas_of_Study.aspx. You should use the Study Guide to begin preparing for the exam as you take your finance classes.’
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STUDENTS WITH DISABILITIES Disabilities Statement: Texas Christian University complies with the Americans with Disabilities Act and Section 504 of the Rehabilitation Act of 1973 regarding students with disabilities. If you require accommodations for a disability, please contact the Coordinator for Students with Disabilities in the Center for Academic Services, located in Sadler Hall 11. Further information can be obtained from the Center for Academic Services, TCU Box 297710, Fort Worth, TX 76129, or at 817-257-7486. Adequate time must be allowed to arrange accommodations and accommodations are not retroactive; therefore, students should contact the Coordinator as soon as possible in the academic term for which they are seeking accommodations. Each eligible student is responsible for presenting relevant, verifiable, professional documentation and/or assessment reports to the Coordinator. Guidelines for documentation may be found at http://www.acs.tcu.edu/DISABILITY.HTM.
Students with emergency medical information or needing special arrangements in case a building must be evacuated should discuss this information with their instructor/professor as soon as possible. ACADEMIC MISCONDUCT Academic misconduct is behavior in which a deliberately fraudulent misrepresentation is employed in an attempt to gain undeserved intellectual credit, either for oneself or for another. It includes, but is not necessarily limited to copying, plagiarism, collusion, abuse of resource materials and computer/software misuse. All instructors or proctors shall have the right to examine materials in the student's possession during quizzes, examinations, and/or laboratory sessions. In instances of cheating during an examination or other classroom or laboratory activity or exercise, the instructor shall have the right to suspend the student(s) who is (are) cheating from further work on the examination or exercise and to deny the student(s) credit for the examination or exercise. Faculty may impose the following sanctions for academic misconduct: a. Grant no credit for the examination or assignment in question (treated as a missed assignment.) b. Assign a grade of F (or a zero) for the examination or assignment in question. c. Recommend to the dean that the student be dropped immediately from the course with a grade of F. This grade cannot be changed by student-initiated withdrawal. Also note that the dean of the college may also enforce specific sanctions. Procedures for handling cases of alleged academic misconduct have been carefully drawn to protect the rights of individual students and to safeguard the University's commitment to academic integrity.
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