Fin 323--Investments

Fall 2007

Professor:

Dr. Richard J. Kish

Office:

441 Rauch Business Center

610/758-4205 (Phone)

rjk7@lehigh.edu (email)

http://www.lehigh.edu/~rjk7 (homepage)

Blackboard:

http://bb.lehigh.edu

Announcements, assignments, lecture notes, and handouts

Office Hrs:

1:00 PM – 2:00 PM M/W/F

And by appointment

Class Time:

9:10 PM – 10:00 PM M/W/F (Section 10)

10:10 PM – 11:00 PM M/W/F (Section 11)

Text:

INVESTMENTS

Zvi Bodie, Alex Kane, and Alan Marcus

McGraw-Hill Irwin, 7th ed. (2008): ISBN 978-0-07-353061-1

Other Course Requirements:

Financial Calculator

Subscription to the Wall Street Journal

Prerequisites:

Fin 125  (Acct 151, Eco 129, Eco 145, and Math 21), and Eco 146

Attendance Policy:

Class attendance is a course requirement. Students are expected to be on time and prepared for all classes. All absences require an email note with your name and class student number explaining the absence. This note is required no later than the day that you return to class from an illness. For personal reasons, the note should be sent in advance of the scheduled absence. It is your responsibility to obtain class notes and handouts, and to make-up all missed assignments.

Accommodations for Students with Disabilities:

If you have a disability for which you are or may be requesting accommodations, please contact both your instructor and the Office of Academic Support Services, University Center 212 (610-758-4152) as early as possible in the semester.  You must have documentation from the Academic Support Services office before accommodations can be granted.

 

COURSE OBJECTIVES:

This is an introductory course in investments. The aim is to learn the techniques and language professional and individual investors employ. Many of the techniques will serve the students well regardless of their fields. In learning the techniques, it is incumbent on the students to understand when it is appropriate to apply them and how to evaluate the techniques’ strengths and weaknesses. Some of the techniques students will learn include: how to evaluate risk; how to value an asset; how to calculate price sensitivities; and how to measure performance.

 

LEARNING OBJECTIVE:

Upon completing this course, the student should be able to:

¨     Understand why risk and return are the two critical components of all investing decisions.

¨     Calculate various risk and return measures (both ex post and ex ante) and apply them to the investment decision making process.

¨     Understand the basic concepts of the various money market and capital market securities and their relationship to risk/return tradeoffs.

¨     Understand how the equity markets, where stocks are traded, are organized and how they operate.

¨     Understand what market efficiency means, along with what the efficient frontier is and its importance in investment analysis.

¨     Understand and calculate various bond yield measures, the price of a bond, and the duration and convexity of a bond.

¨     Understand the foundation of valuation for common stocks as well as estimate the value of stocks using various valuation models.

¨     Analyze a company using the techniques of fundamental analysis.

¨     Understand the basic valuation techniques for options and futures.

To assist students with becoming acquainted with the tools used, students are encouraged to do the quantitative portions of problem sets on spreadsheet programs. Students are also encouraged to communicate any questions or comments to the professor through e-mail. I will attempt to respond in a timely manner.

 

 

GRADING:

 

Weight

Career Paper

5%

Group Assignments

25%

  Project I: Risk and Return

  Project II: Valuation

 

Quizzes (3 @ 15% each)

45%

Final Exam

25%

 

GRADING SCALE:

Total > 93.0

A   Excellent

93.0 > Total > 90.0

A-

90.0 > Total > 88.0

B+

88.0 > Total > 83.0

B   Good

83.0 > Total > 80.0

B-

80.0 > Total > 78.0

C+

78.0 > Total > 73.0

C   Satisfactory

73.0 > Total > 70.0

C-

70.0 > Total > 68.0

D+

68.0 > Total > 63.0

D   Passing

63.0 > Total > 60.0

D-

60.0 > Total

F   Failure

 

Quizzess and Final Exam

 

¨     No Make‑Up Exams will be given. Absences will result in a grade of zero for any missed quiz or exam. Plan your schedule, so that you can take the 3 quizzes and the final exam. Dates for the Quizzes are on the following Fridays: 9/21/07, 10/26/07, and 11/30/07. The FINAL EXAM will be given as scheduled by the registrar during the final exam period: December 11 through December 19. You are expected to bring a financial calculator to all evaluations.

 

 

 

GROUP ASSIGNMENTS

The class will be divided into groups of 4-5 students each. Each group will complete 2 written reports. All group assignments must include a signed Grade Allocation Sheet (discussed below). The grade that you receive for the course will be influenced by the performance of your team. Thus, this course provides the opportunity for group participation and leadership, skills that are valuable throughout life.

 

GRADE ALLOCATION SHEET:

The grade allocation sheet (GAS) is a statement allocating the team grade to the individual team members and must be turned in both group assignments. Each member must sign the GAS and agree upon the weights to be used to allocate the grade among the team members.  The average group weight must be 100% of the over‑all case grade, but your group can assign individual weights from a low of 50% to a high of 150% of the overall grade. This allocation system is the only fair way to distribute the grade in accordance with the work of the individual members. If you work harder than other members of the team, you should expect and demand a higher allocation. A member that contributes less than average to the team effort should expect to receive less than an average grade allocation. The team must decide itself how the grade is to be allocated. The assignments will NOT be accepted without a GAS signed. Since each member must sign the GAS, each individual member must be satisfied that the weight allocation is proper before he or she signs. There will not be any "arbitration process" by the instructor, this must be a team decision accepted with understanding and compromise among the members.

 

                                                  EXAMPLE:  Team Grade (90%)

                   Allocation   Grade Assigned

Member 1 . . . 100% . . . . .   90%

Member 2 . . .   90% . . . . .   81%

Member 3 . . . 120% . . . . . 100% (108%)*

Member 4 . . .   90% . . . . .   81%

Average    . . . 100% . . . . .   90%

*Note: No team member can receive a score higher than 100% on any assignment.

 

Sample Grade Allocation Sheet

 

Name

Allocation

Member 1

 

 

Member 2

 

 

Member 3

 

 

Member 4

 

 

 

 

INDIVIDUAL PROJECT

Each student is required to investigate a job/career within the investment field of his/her choosing. Your report should focus on the following 3 aspects:

·       What are the requirements for entry?

·       What are the requirements for advancement?

·       What are the typical daily functions/duties?

Final report is due Monday, November 19, 2007. Your report should consist of a title page, 1-page executive summary, a 6-page maximum body of the report, a reference page, and any number of appendices (tables, graphs, charts, etc.). Your report must incorporate information from at least 3 sources including a personal interview of someone working in your chosen job/career preferably someone that has recently entered this career field (2-5 years).

 

 

 

WRITTEN REPORT FORMAT

*   *   *   All Reports Must Be Typed.   *   *   *

 

¨     Executive Summary: Each write-up must include an executive summary. The executive summary is a one-page essay overview of everything covered within your report, including the overall solution (1 page Maximum). It is not an introduction and is not to be in bullets.

 

¨     Body of Report: The body of the report should include an introduction and a conclusion. Your report should address all the questions presented within the assignment as well as factors that are disturbing such as limiting assumptions or ethical implications of suggested alternatives. DO NOT write your report in the style of "The answer to question 1 is . . .". Also resist the temptation to use statements like "See Exhibit 3" without explaining the data within the text of the report. Expand the statement to something like the following: "The current ratio is 2.3x, which is below the industry and peer group average, and it has been declining over time.  See Exhibit 3 for a detailed analysis of the ratio calculations." Be sure to include page numbers.

 

¨     Exhibits:  Tables, graphs, and detailed equations should be placed in exhibits to avoid disrupting the flow of the report. Exhibits should be used to illustrate, explain, and elaborate on points made in the report text, but it should be possible for the reader to follow the report without ever referring to the exhibits. Exhibits should also be stand-alone documents, so include relevant titles and highlight the important figures or equations. All exhibits must be tied into the text. Show only the relevant number of decimal places when reporting numbers.

 

¨     References

 

 

 

 

STUDY UNITS (Major chapters are in BOLD.)

I.          Introduction/Background:

Chapters: 1, 2, 3, 4

II.        Portfolio Theory:

Chapters: 5, 6, 7, 8

III.       Equilibrium in Capital Markets:

Chapters: 9, 10, 11, 12, 13

IV.       Fixed Income Securities:

Chapters:  14, 15, 16

V.        Security Analysis:

            Chapters: 17, 18, 19

VI.       Derivatives:

            Chapters: 20, 21, 22, 23

VII      Applied Portfolio Management:

            Chapters 24, 25, 26, 27