Module Identifier AC30420
Module Title INVESTMENTS
Co-ordinator Professor Owain M Ap Gwilym
Semester Semester 2 (Taught over 2 semesters)
Other staff Miss Sarah Lindop
Pre-Requisite AC10310 , AC10410 OR EC10910 , AC10710
Co-Requisite AC32820
Course delivery Lecture   20 Hours.
Seminars / Tutorials   8 Hours.
Assessment
Assessment TypeAssessment Length/DetailsProportion
Semester Exam3 Hours  80%
Semester Assessment 2,000 word essay20%
Supplementary Exam3 Hours  100%

#### Learning outcomes

On successful completion of this module students should be able to:
• Measure and evalute risk and return

• Distinguish between individual asset risk and systematic risk

• Apply key analytical techniques for investment analysis

• Evalute the practical relevance of classic theories of investment

• Analyse options and other derivative assets

• Analyse fixed income securities and the term structure of interest rates

#### Aims

The module aims to equip you with the necessary tools for quantitative analysis of financial markets. It will enable you to evaluate personal and institutional investments, to analyse options and other derivative assets, and to conduct basic analysis of the term structure of interest rates.

#### Brief description

Together with AC32820 (Financial Markets and Institutions) and AC30520 (Corporate Finance), this module forms part of modern finance. This module emphasises analytical aspects of the subjects and is quantitative. It introduces the three classic models: model of portfolio selection, the capital asset pricing model and option pricing model. In addition, it covers part of fixed-income theory, ie, bond pricing and term structure of interest rates.

#### Content

Introduction and Background:
Bodie and Merton, Chapter 1;
Elton et al, Chapter 2;
Sharpe et al, Chapter 1.

Topic 1: Portfolio Theory
Key concepts: risk and return, mean and variance, correlation coefficient, diversification principle, minimum variance portfolio, the tangency portfolio, risk aversion, indifference curve, optimal portfolio.
Bodie and Merton, Chapters 10.1, 10.7, 11.10 & 12;
Elton et al, Chapters 4, 5, 6 & 10.
Sharpe et al, Chapters 6, 7 & 8.

Topic 2: The Capital Asset Pricing Model (CAPM)
Key concepts: market portfolio, capital market line, security market line, covariance, Beta.
Bodie and Merton, Chapter 13;
Elton et al, Chapter 13;
Sharpe et al, Chapter 9.

Topic 3: Options and Other Derivative Assets
Key concepts: Call, put, American (European) options, option, payoff diagrams, Put-Call Parity, one-period binomial model, The Black-Scholes model for European call option.
Bodie and Merton, Chapters 14 & 15;
Elton et al, Chapters 23 & 24;
Sharpe et al, Chapters 19 & 20.

Topic 4: Bond and Term Structure Theories
Key concepts: Spot rates, forward rates, yield curves, theories of interest rate.
Bodie and Merton, Chapter 8;
Elton et al, Chapters 21 & 22;
Sharpe et al, Chapters 13, 14 & 15.

Books
** Recommended Text
Bodie, Zvi. (2000.) Finance /Zvi Bodie, Robert C. Merton. Prentice Hall 013310897X
Elton, E, M Gruber, S Brown and W Goetzmann (2007) Modern Portfolio Theory and Investment Analysis 7th edition. Wiley
** Supplementary Text
Blake, David (2000.) Financial market analysis /David Blake. 2nd ed.. Wiley 9780471877288
Brearley, R and S Myers (2003) Principles of Corporate Finance 7th edition. McGraw-Hill
Ross, Stephen A. (c2005.) Corporate finance /Stephen A. Ross, Randolph W. Westerfield, Jeffrey Jaffe. 7th ed. McGraw-Hill/Irwin 0071238441
Rutterford, Janette (June 2007) An Introduction to Stock Exchange Investment 3rd ed.,Revised. Palgrave Macmillan 9780333778029
Sharpe, William F. (1999.) Investments /William F. Sharpe, Gordon J. Alexander, Jeffrey V. Bailey. 6th ed.. Prentice-Hall 013011507X

#### Notes

This module is at CQFW Level 6