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SCHOOL OF BUSINESS

Department of Economics

Course Name: Investment Theory

Course Code & Section No: FIN 637

Semester: Spring 2015

INSTRUCTOR AND DEPARTMENT INFORMATION

1. Instructor Name:

Dr. Asad Karim Khan Priyo

2. Office Room NAC 831 (C)

3. Office Hours: 5 – 7 pm (S), 12:30 – 2:30 pm (MW), 2 – 3 pm, 6:10 – 7:10 pm (F)

4. Office Phone: n/a

5. Email Address: asad.priyo@northsouth.edu, priyo19@gmail.com

6. Department: MBA, School of Business

7. Links: North South University Website: www.northsouth.edu

Department of Economics Website: http://www.northsouth.edu/academic/sob/mba-emba-programs.html

Faculty Website: asadpriyo.weebly.com

COURSE INFORMATION

Class Time & Location

Sunday 7:00 – 10:10 pm, Room: NAC 503

Course Prerequisite(s)

BUS 635

Course Credit Hours 3.0

Course Description An investment is the current commitment of money or other resources in the expectation of reaping future benefits. The course is designed to introduce students to various aspects of the investment process. The course covers money market securities as well as the primary financial securities - bonds (fixed income and/or debt), stocks (equity), and options (derivatives) - and methods for combining these underlying assets into a portfolio. The course also focuses on deriving and understanding some of the most fundamental theories based on which various financial assets are valued. Students will get an opportunity to apply the concepts learned in class through a group portfolio project.

Course Objectives The overall goal of the course is to familiarize the students with the investment process. This process involves identifying objectives and constraints and understanding the underlying theory behind portfolio formation and asset valuation.

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Student Learning Outcomes

By successfully completing this course, students should be able to:

1. Outline the role of financial assets in the economy.

2. Compute and interpret risk and return of any financial asset or portfolio.

3. Explain the basics of the theoretical formulation of an optimal portfolio.

4. Interpret the Capital Market Line (CML) and the Security Market Line (SML).

5. Compute and interpret the “intrinsic” value of major financial assets such as bonds and

stocks.

TEXT BOOK (S)

Required Text:

Bodie, ZVI, Alex Kane and Alan J. Marcus. 2015-16. Investments. 10th Edition, McGraw-Hill - International

Edition.

Supplementary Text:

Jones, Charles P. 2002. Investments: Analysis and Management, 8th Edition, John Wiley & Sons, Inc.

TEACHING STRATEGY

For each topic, I will prepare lecture slides that the students can download from my Website. During lectures, I

will use these slides to explain the topics in as much detail as possible. Students are expected to take notes to

supplement materials presented in lecture slides. Students are encouraged to ask questions and participate

actively in class. The tentative lecture plan is given below:

Lecture No. Date Day Topic Relevant

Chapters

1

1st half

February 5 Thursday

Introduction & General Discussion -

2nd half The Investment Environment + Asset Classes

and Financial Instruments

1 + 2

2 1st half

February 7 Saturday

Cont… Asset Classes and Financial Instruments

+ How Securities are Traded

2 + 3

2nd half Risk and Return 5

3

1st half

8

Sunday

Capital Allocation to Risky Assets 6

2nd half Cont… Capital Allocation to Risky Assets 6

4 1st half

15 Sunday Quiz 1 + Optimal Risky Portfolios 7

2nd half Cont... Optimal Risky Portfolios 7

5 1st half

March 7 Sunday Exam 1

Ch. 1, 2, 3, 5, 6

2nd half The Capital Asset Pricing Model 9

6 1st half

15 Sunday Arbitrage Pricing Theory 10

2nd half The Efficient Market Hypothesis 11

7

1st half

22 Sunday

Bond Prices and Yields 14

2nd half Cont… Bond Prices and Yields + Submission of

Team Portfolio Selections

14

8 1st half

29 Sunday Managing Bond Portfolios 16

2nd half Quiz 2 + Cont… Managing Bond Portfolios 16

9

1st half

5 Sunday

Equity Valuation Models 18

2nd half Cont… Equity Valuation Models + Submission

of Portfolio Performance Report 1

18

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Lecture No. Date Day Topic Relevant

Chapters

10

Exam 2 Ch. 9, 10, 11, 14, 16

11

1st half

12 Sunday

Economic/Market Analysis Jones: 13

2nd half Industry Analysis + Company Analysis

Submission of Portfolio Performance Report 2

Jones:

(14 +15)

12

1st half

19 Sunday

Cont… Industry Analysis + Company Analysis;

Options Markets: Introduction + Option

Valuation (Selected Methods)

Jones:

(14 +15);

BKM: (20 +

21)

2nd half Quiz 3 + Options Markets: Introduction +

Option Valuation (Selected Methods)

BKM: (20 +

21)

Submission of Portfolio Performance Report 3

(On or after the final exam)

Note: The instructor reserves the right to make changes to the syllabus if necessary.

EXAM SYLLABUSES

Quiz 1: Ch. 1, 2, 3, 5, 6 Exam 1: Ch. 1, 2, 3, 5, 6, 7

Quiz 2: Ch. 9, 10, 11, 14 Exam 2: Ch. 9, 10, 11, 14, 16

Quiz 3: Ch. 18, Jones: 13, (14 + 15) Final Exam: Ch. 7, 9 (Review), 18, (20 + 21) Jones: 13, (14 + 15)

New for the Final

PORTFOLIO PROJECT

Student teams of three to four members will invest a fictitious Tk. 1,000,000 in five stocks with approximately Tk. 200,000 invested in each of the 5 stocks. The deliverables for the portfolio project are as follows:

1) Sunday, March 1 - Submit team portfolio selections. The portfolio selection memo will contain the team’s picks – five stocks – and a short explanation (one to two paragraphs) on each of the five picks explaining why the team believes the stock will perform well over the next two months. It will also contain the team’s explanation for why they think that the portfolio as a whole will perform well over the next two months. The portfolio selection memo will be no longer than ten pages.

While selecting a company’s stock, you need to obtain information on the company’s net income, total common stock, dividends and retained earnings. You can and should look into other information in order to select your stocks but you will require information on the above mentioned variables to complete the tasks for your final submission.

2) On the dates listed on the syllabus submit a three to four page report containing the following items (A total of 3 small reports):

♦ Portfolio performance over the past two weeks (or whatever the period is since the last memo) (percentage and taka gain or loss for the two weeks and since inception)

♦ Explanation of the results (what drove the portfolio’s performance);

♦ Evaluation of last report’s expectations (performance occurred as expected, or, performance deviated from expectations and why);

♦ (Only for the FIRST TWO small reports) Expectations for the upcoming two weeks (or whatever the period is until the next submission).

♦ (Only for the FINAL submission): Compute the “Fair/Intrinsic” value of each of the five stocks making appropriate assumptions and advise whether to keep the stock or sell it.

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EVALUATION CRITERIA

The weights on each component of the overall course grade are as follows:

ASSESSMENT STRATEGY AND GRADING SCHEME Grading tool

% contributing towards the final score

Attendance 5%

Quiz 10%

Portfolio Project 15% (5+2.5+2.5+5)

Exam 1 20%

Exam 2 20%

Final 30%

Total 100%

GRADING POLICY

Grades will be assigned according to NSU grading policy.

ATTENDANCE POLICY

5% of the final score has been assigned to attendance. This is to give the students an additional incentive to attend classes since attending lectures is of paramount importance if one wants to do well in this course. Just by attending all classes, a student can obtain these points. No point will be deducted if a student misses only one class. After that, for each class one misses, 1 point (that is 1% of the final score) will be deducted. For example, if a student misses 2 classes, s/he will receive 4/5 for attendance; if a student misses 3 classes, s/he will receive 3/5 for attendance and so on. Students are expected to arrive at the lectures on time. If anyone is late for an unavoidable situation, then s/he must let the instructor know about it at the end of the class to ensure the attendance.

POLICY ABOUT MAKE-UP EXAMS

There will be no make-up quizzes. Make-up examination is possible only in cases of documented illness or extreme personal emergencies. Students with such cases will be allowed to take make up only for one of the midterms i.e. if anyone misses both the midterms, s/he will be assigned zero in one of them. The only make up exam will be taken on a suitable date after the 2nd midterm and prior to the final exam. The syllabus of the makeup midterm will be cumulative of Midterm 1 and Midterm 2.

CLASSROOM RULES OF CONDUCT

A student can use her/his laptop in the class for class related work, e.g., taking notes. Use of laptop for non-class related work or in any manner that will be distracting to other students or the instructor is strictly prohibited . Students should keep all their communication devices (such as mobile devices, pagers, iPod, beepers etc.) turned off during the class. If someone needs to use one of these, then s/he should go outside of the classroom.

ACADEMIC INTEGRITY POLICY School of Business does not tolerate academic dishonesty by its students. At a minimum, students must not be involved in cheating, copyright infringement, submitting the same work in multiple courses, significant collaboration with other individuals outside of sanctioned group activities, and fabrications. Students are advised that violations of the Student Integrity Code will be treated seriously, with special attention given to repeated offences. For details, refer to NSU Student CODE OF CONDUCT at: www.northsouth.edu/student-code-of-conduct.html

APPROPRIATE USE POLICY

All members of the North South University community must use electronic communications in a responsible manner. The University may restrict the use of its computers and network systems for electronic communications subject to violations of university policies/codes or local laws or national laws. Also, the university reserves the right to limit access to its networks through university-owned or other computers, and to remove or limit access to material posted on university-owned computers.

Wish you all the best. Let’s hope to have a wonderful semester!!!