Australian School of Business Banking and Finance

FINS5513
INVESTMENTS AND PORTFOLIO SELECTION

This Version: 12 July 2013

Course Outline Semester 2, 2013
Part A: Course-Specific Information
Please consult Part B for key information on ASB policies (including those on plagiarism and special consideration), student responsibilities and student support services.

Table of Contents
PART A: COURSE-SPECIFIC INFORMATION 1 2 2.1 2.2 2.3 2.4 2.5 3 STAFF CONTACT DETAILS COURSE DETAILS Teaching Times and Locations Units of Credit Summary of Course Course Aims and Relationship to Other Courses Student Learning Outcomes LEARNING AND TEACHING ACTIVITIES 1 1 1 1 1 1 2 2 4 4 4 4 4 4 5 5 6 7 8 8

3.1 Approach to Learning and Teaching in the Course 3.2 Learning Activities and Teaching Strategies 4 4.1 4.2 4.3 4.4 4.5 5 6 7 ASSESSMENT Formal Requirements Assessment Details Assessment Format Assignment Submission Procedure Late Submission COURSE RESOURCES COURSE EVALUATION AND DEVELOPMENT COURSE SCHEDULE

FINS5513 Investments and Portfolio Selection

PART A: COURSE-SPECIFIC INFORMATION 1 STAFF CONTACT DETAILS
Lecturer Ning Ding Ah Boon Sim Thuy To Office ASB 302 ASB 331 ASB359B Phone 9385-7864 9385-5868 9385-5865 Consultation Hours Thursday 4-6pm Thursday 4-6pm Wednesday 2-4pm E-mail n.ding@unsw.edu.au a.sim@unsw.edu.au td.to@unsw.edu.au

Associate Professor Ah Boon Sim is the course lecturer-in-charge (LIC). Consultation hours will be held by lecturers during their teaching weeks (see course schedule on page 10). For consultations at other times, please email to make an appointment.

2 COURSE DETAILS
2.1 Teaching Times and Locations
Lectures start in Week 1(to Week 12). There are three scheduled class meetings per week. The times and locations are: Day of the Week Monday Tuesday Wednesday Time 14:00 – 17:00 14:00 – 17:00 18:00 – 21:00 Location (Subject to change) ChemSc M10 Webst Th A ChemSc M10

Students can only and must attend the classes that they are enrolled in. Please check via Myunsw for your latest class location.

2.2

Units of Credit

The course is worth 6 units of credit. There is no parallel teaching in this course.

2.3

Summary of Course

This course develops a basic conceptual framework to understand modern investments. Students learn to evaluate alternative investment strategies, develop a more complete understanding of the risk-return relation, and discuss recent developments in investment management. Surveys various financial markets and provides a review of the instruments used to allocate capital and manage risk. Topics include measuring risk and return, designing portfolios, pricing risk, valuing equities, valuing fixed income securities, hedging with derivatives. Students are assessed through a variety of means; including quizzes and exams, computer exercises, and case study discussions.

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2.4

Course Aims and Relationship to Other Courses

This course is one of two gateway finance courses. It is the pre-requisite course for many finance courses. It provides the basic investment and financial risk management tools that you will need to succeed in our advance finance classes, as well as to contribute as a finance professional upon graduation. This is mainly a theory course. Most of the corresponding practical examples and applications are covered in FINS5517. Most students taking this course would have completed a basic finance course (or a basic course in financial markets), and have some basic understanding of financial mathematics and business statistics.

2.5

Student Learning Outcomes

The Course Learning Outcomes are what you should be able to DO by the end of this course if you participate fully in learning activities and successfully complete the assessment items. The Learning Outcomes in this course also help you to achieve some of the overall Program Learning Goals and Outcomes for all postgraduate coursework students in the ASB. Program Learning Goals are what we want you to BE or HAVE by the time you successfully complete your degree (e.g. ‘be an effective team player’). You demonstrate this by achieving specific Program Learning Outcomes - what you are able to DO by the end of your degree (e.g. ‘participate collaboratively and responsibly in teams’).

ASB Postgraduate Coursework Program Learning Goals and Outcomes
1. Knowledge: Our graduates will have current disciplinary or interdisciplinary knowledge applicable in local and global contexts. You should be able to identify and apply current knowledge of disciplinary or interdisciplinary theory and professional practice to business in local and global environments. 2. Critical thinking and problem solving: Our graduates will have critical thinking and problem solving skills applicable to business and management practice or issues. You should be able to identify, research and analyse complex issues and problems in business and/or management, and propose appropriate and well-justified solutions. 3. Communication: Our graduates will be effective communicators in professional contexts. You should be able to: a. Produce written documents that communicate complex disciplinary ideas and information effectively for the intended audience and purpose, and b. Produce oral presentations that communicate complex disciplinary ideas and information effectively for the intended audience and purpose. 4. Teamwork: Our graduates will be effective team participants. You should be able to participate collaboratively and responsibly in teams, and reflect on your own teamwork, and on the team’s processes and ability to achieve outcomes. 5. Ethical, social and environmental responsibility: Our graduates will have a sound awareness of ethical, social, cultural and environmental implications of business issues and practice. You should be able to: a. Identify and assess ethical, environmental and/or sustainability considerations in business decision-making and practice, and b. Consider social and cultural implications of business and /or management practice.

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For more information on the Postgraduate Coursework Program Learning Goals and Outcomes, see Part B of the course outline. The following table shows how your Course Learning Outcomes relate to the overall Program Learning Goals and Outcomes, and indicates where these are assessed (they may also be developed in tutorials and other activities):
Program Learning Goals and Outcomes This course helps you to achieve the following learning goals for all ASB postgraduate coursework students: 1 Knowledge Course Learning Outcomes On successful completion of the course, you should be able to: Course Assessment Item This learning outcome will be assessed in the following items:

Explain the standard models of asset and derivative pricing and their underlying assumptions. Use the standard models of asset and derivative pricing to interpret and analyse real problems in investments. Construct written work which is logically presented. Communicate ideas in a succinct and clear manner. Work collaboratively to complete a task. Identify and assess ethical considerations in investment decisions.

•

Exams

2

Critical thinking and problem solving Written communication Oral communication Teamwork Ethical, environmental and sustainability responsibility Social and cultural awareness

•

Exams

3a

Not specifically assessed. Not specifically assessed. Not specifically assessed. Final Exam

3b

4 5a.

•

5b.

Not specifically addressed in this course.

Upon completion of this course you will have a basic knowledge of portfolio construction, equity valuation, fixed income investing, and derivatives pricing. Specifically, you will: • • • • • • Be able to build and analyze investment portfolios Have a working knowledge of the operations of key financial markets Discuss and write about major investment topics Be confident in valuing a range of asset types Develop links between theory and the practice of investment management Select subsequent finance courses

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3 LEARNING AND TEACHING ACTIVITIES
3.1 Approach to Learning and Teaching in the Course

There is a lot of material to cover in this class, but we want to ensure that it will be relevant and meaningful to you in class and after you graduate: To help achieve this objective we have a number of teaching aims: • Create a climate of engagement, dialogue and ongoing feedback between students and lecturers regarding the content, teaching strategies, learning experiences and outcomes; • Cater for a variety of learning preferences and abilities by providing a range of learning activities and teaching methods; • Develop independent learning skills and create an environment that both provides structure and guidance as well as encouraging students to extend their learning ;

3.2

Learning Activities and Teaching Strategies

This course consists of weekly three-hour sessions delivered through a combination of lecture and discussion. Students are given continuous feedback about their progress throughout the term. There is at least one piece of assessment every week. When possible we will bring current research to class. We do this through discussion, referring to topical papers, showing webcasts of well-known researchers, and analyzing data from current financial markets. We employ a number of strategies, including: Continuing to provide a comprehensive range of on-line activities and resources so as to encourage independent learning, self-assessment and reflection on learning progress; Monitoring on-line activities to be aware of student progress as it occurs.

4 ASSESSMENT
4.1 Formal Requirements
In order to pass this course, you must satisfy all the following: • achieve a composite mark of at least 50; and • achieve a mark of at least 25 out of 50 for the final examination; and • make a satisfactory attempt at all other assessment tasks (see below).

4.2

Assessment Details

The assessment is designed to promote and reinforce our learning objectives. In particular, • • • • Be able to build and analyze investment portfolios Be confident in valuing a range of asset types Develop links between theory and the professional practice of investment management Select subsequent finance courses

Feedback, both graded and ungraded, comes in a variety of modes:

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• • • • • •

On-line quizzes are graded immediately and give weekly feedback on students’ progress. Mid-session and final examinations provide a thorough review of the course materials. In-class discussions and exercises provide quick feedback on student learning. Solutions to every problem in the textbook are available through Moodle. Optional, example Excel applications, complete with solutions are made available through the text website Contact the lecturer during consultation hours

Unless otherwise indicated, grades for all assessment (except final examination) will be provided within two weeks of submission. For further information on assessment and grades, please visit the following websites: https://my.unsw.edu.au/student/academiclife/assessment/AssessmentatUNSW.html https://my.unsw.edu.au/student/academiclife/assessment/GuideToUNSWGrades.html

4.3

Assessment Format

The table below is an overview of the assessment tasks, due dates and relative weighting. Assignment Name ASB Learning Outcomes 1,2 1,2,3a 1,2 1,2,5a Due date Thursday 23:00 Sept. 27 6pm Sept. 6, 6-9pm Final Exam Week Weight 5% 5% 40% 50% 100%

Online Quizzes Assignment Mid-Session Exam Final Examination TOTAL All the above assessment tasks are mandatory. Weekly Online Quizzes Due: Weekly Weight: 5% of the Final Grade

Every week (except Week 6) a quiz is made available through Moodle and covers the assigned text readings and material in the lecture notes for that week. The quiz is available on Mondays at 18:00 and closes on the following week’s Thursday at 23:00. You can take the quiz as many times as you want when it is available. Ten multiple choice questions are randomly drawn from a test-bank and you have 20 minutes to submit your answers. Upon submission you will be immediately informed of your grade and feedback on each question would be given after the quiz has closed. The average of your quiz scores for each week becomes your grade for the quiz that week. The purpose of these quizzes is to enable you to engage in the learning by exercising problem solving skills, as well as provide feedback on the extent of your knowledge to guide your studies. Please read Part B of the course outline regarding academic honesty and the weekly online quizzes. For matters relating to the quizzes, please email a.sim@unsw.edu.au . Please note that Week 1 quiz is available till Week 3 Thursday (15th August 2013) at 11pm.

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Assignment (Individual) Due: Week 9 Friday 27-Sep-2013 6pm Weight: 5% of the Final Grade MidMid-session examination Due: Week 6 (Friday, Sept. 6, 6-9 pm (2 hrs), Venue TBA) Weight: 40% of the Final Grade The mid-session examination tests material covered either in the text or in the lecture notes during the first 5 weeks of class. The examination is closed book. The midsession examination is not a learning tool and will not be returned to students. Final examination Due: Held during the UNSW Exam Week (date to be determined) Weight: 50% of the Final Grade The final examination will cover Weeks 7 to 12 and it requires understanding of materials covered in the earlier weeks. It would test materials covered in the text, lecture notes, other required lecture and reading materials. The examination is closed book. All exams are conducted in accordance with the UNSW Rules for the Conduct of Examinations and it is the student’s responsibility to be familiar with these rules. For more information, refer to the UNSW examination website: https://my.unsw.edu.au/student/academiclife/assessment/examinations/examinations.html You must follow all (both verbal and written) instructions. The penalty for entering a wrong student number, use pencil for written answers or went to the wrong venue is 5% of the examination mark for each incident. For matters relating to the mid-session and final examinations, please email a.sim@unsw.edu.au .

4.4

Assignment Submission Procedure

The weekly online quizzes are available on Moodle. The completed assignments are to be uploaded to Moodle by Friday 27-Sep-2103 at 6pm.

4.5

Late Submission

Weekly online quizzes are available for 10 days (17 days for the first quiz) and there will be no extensions for missed weekly online quizzes regardless of excuse. If you miss a weekly online quiz, you miss it. For the assignment, 0.5 marks (10%) will be deducted for each calendar day the assignment is late. Quality Assurance The ASB is actively monitoring student learning and quality of the student experience in all its programs. A random selection of completed assessment tasks may be used for quality assurance, such as to determine the extent to which program learning goals are being achieved. The information is required for accreditation purposes, and aggregated findings will be used to inform changes aimed at improving the quality of ASB programs. All material used for such processes will be treated as confidential and will not be related to course grades.

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5 COURSE RESOURCES
5.1 Required textbook Investments, by Z. Bodie, A. Kane, and A. Marcus, 9th Ed., McGraw-Hill Irwin, 2011. 5.2 Other useful textbooks Essentials of Investments, by Z. Bodie, A. Kane, and A. Marcus, McGraw-Hill Irwin, 2001. Spreadsheet Applications to Securities Valuation and Investment Theories, by Henry Yip, 1st Ed., Prentice Hall, 2005. 5.3 Other Readings Security Analysis, by Benjamin Graham and David L. Dodd, McGraw Hill, 1934. Still in print, this is regarded as the bible of value investing. The only book you need to read according to Warren Buffett. Liar's Poker: Rising Through the Wreckage on Wall Street, by Michael Lewis, W. W. Norton & Company, 1989. The book provides a funny and insightful account of the author’s 3-year sting as a Salomon Brothers’ bond salesman. “So memorable and alive….one of those rare works that encapsulate and define an era.” – Fortune Magazine A Random Walk Down Wall Street, by Burton Gordon Malkiel, 7th Ed., W. W. Norton & Company, 1999.A classic book that has educated many investors. Capital Ideas: The Improbable Origins of Modern Wall Street, by Peter L. Bernstein, Free Press, 1992. The development of modern finance theory and how it has changed Wall Street. 5.4 Moodle This course makes extensive use of the Moodle site, which includes the following: • • • • • • • • • • • • • Suggested preparation and review strategies; Lecture notes (both in printer friendly format, and as a slideshow) Weekly quizzes Detailed information about all assignments Worked solutions to all practice problems in the text Practice spreadsheet exercises Public discussion, chat, and bulletin board areas A variety of finance links Links to the UNSW library for supplemental readings Links to various UNSW student resources A personal log of your use of the website Your assessment results as well as summary statistics for the class On-line technical support

The Moodle site for this course can be accessed from the Moodle log-in page at: http://telt.unsw.edu.au or via MyUNSW at http://my.unsw.edu.au

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6 COURSE EVALUATION AND DEVELOPMENT
Each year feedback is sought from students and other stakeholders about the courses offered in the School and continual improvements are made based on this feedback. UNSW's Course and Teaching Evaluation and Improvement (CATEI) Process is one of the ways in which student evaluative feedback is gathered. Significant changes to courses and programs within the School are communicated to subsequent cohorts of students.

7 COURSE SCHEDULE
Week 1 Lecturer A Sim Topic Introduction; Basic Probability and Statistics; Financial Instruments; Equity Indices; Securities Trading Investment Companies; Risk and Return Risk Aversion and Capital Allocation; Optimal Risky Portfolios Index Models; CAPM APT and Multifactor Models; Efficient Market Hypothesis Mid-Session Exam Friday Sept. 6, 69pm (2 hrs), Venue TBA Behavioral Finance and Technical Analysis; Empirical Evidence Regression Analysis; Beta and SML Estimation; Bond Pricing and Yields Term Structure of Interest Rates; Managing Bond Portfolios Equity Valuation Models; Options Markets and Options Trading Strategies Options Pricing; Futures Markets Futures and Risk Management; Course Review Exam week Chapter 1,2,3

2 3

T To T To

4, 5 6,7

4 5

T To T To

8, 9 10, 11

6

A Sim

No Lecture 12, 13

7

N Ding

8

N Ding

13, 14

9

N Ding

15,16

10

N Ding

18, 20

11 12

A Sim A Sim

21, 22 23

For Week 10, there would be lectures on Tuesday Oct. 8 and Wednesday Oct. 9 but no lectures on Monday Oct. 7 due to a public holiday on that day. For Week 10 only, students enrolled in the Monday class may attend the lectures in the Tuesday and Wednesday classes.

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8. FREQUENTLY ASKED QUESTIONS
8.1: What type of calculator should I buy for the course? You may use a financial or non-financial calculator for this course. However, it must be an electronic calculator that is approved by UNSW and it must have an approval sticker from UNSW. To get the sticker on your calculator, please bring it to the Australian School of Business Student Centre during its business hours. The following link has a list of calculators that would be approved by UNSW: https://my.unsw.edu.au/student/academiclife/assessment/examinations/Calculator.html 8.2: If I do not bring an approved calculator to the examinations, would I be provided with an approved calculator? No. Also, your calculator would be taken away from you if it does not have a UNSW approval sticker. 8.3: I could not login to Moodle; can I be relieved from my class responsibilities due to a computer problem? No. If you experience difficulties with Moodle or the computer you use to connect to Moodle be sure to take advantage of the many support options provided (visit UNSW IT Service desk for more information). Note that you will not have Moodle access until you are properly enrolled in the class. For more details please visit: http://support.telt.unsw.edu.au/Moodle/content/default.cfm?ss=0 8.4: Can I take a quiz once it is closed by Moodle? No. If you are travelling, ensure that you have web access so that you can complete the quiz. 8.5: I cannot login to Moodle. What should I do? Moodle automatically synchronizes with UNSW’s registration lists to allow enrolled students access to the class site. It will take up to 2 days for UNSW to process your course addition and for Moodle to recognize your enrolment. If you have been enrolled for some time and cannot access the course page it could be a problem with the Moodle account system. Contact the IT Service Desk where they will check on your status and may refer your problem to the Moodle support team. Access to the Moodle site is automatically granted to all registered students. Instructors are unable to solve “access” problems with Moodle – these can only be resolved through IT Service Desk. Remember that your first on-line assessment is due in week 3. All lecture notes and support materials are only accessible on-line. 8.6: Do we get to use formula sheets for the examinations? No. 8.7: Are we allowed to bring formula sheets for the examinations? No. 8.8: Do we get past examination papers? No. 8.9: Do we get sample examination papers? No.

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8.10: Do we have to explain and show all steps for written calculation questions? Yes. Zero marks would be awarded for numerical answers without explanation and intermediate steps. 8.11: How decimal places should we use for our calculations? It depends but you should use at least 4 decimal places for most questions. Answers to dollar value questions must be accurate to the nearest cent. 8.12: Should I use a financial calculator for the examinations? UNSW has an explicit policy on the type of calculators that can be used in examinations, and we use this policy. For more details please go to https://my.unsw.edu.au/student/academiclife/assessment/examinations/Calculator.html For computational questions we require you to show and explain all your work to get credit for any answer, so simply using a fancy calculator will not ensure you a passing grade. Our aim is to test for a significant understanding of the material, and the questions reflect this view. 8.13: The required text is from the US and it covers a lot of US institutional detail. Are we getting too much exposure to the US markets in this class? The text is probably the best-known and most-adopted masters-level investment text among top business schools. We are very comfortable with the topics covered and the technical aspects of the text content. Further, most available texts will have a US focus for one simple reason – American capital markets are by far the largest in the world, attracting investors from all over the globe, and influencing regulations in all markets. So even if you plan on basing your career in Australia you will need a strong working knowledge of the world’s largest and most influential capital market. 8.14: Do we have to pass the final examination in order to pass the course? Yes. See Section 4.1 on Page 4 above for the formal requirements.

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