|| AC30420 |
|| INVESTMENTS |
|| 2004/2005 |
|| Dr Jihe Song |
|| Semester 1 |
|| AC10310 , AC10410 , AC10710 , AC32810 |
| Course delivery
|| Lecture || 16 Hours |
|| Seminars / Tutorials || 4 Hours |
|Assessment Type||Assessment Length/Details||Proportion|
|Semester Exam||3 Hours ||80%|
|Semester Assessment|| Review article||20%|
|Supplementary Exam||3 Hours ||100%|
Learning outcomesOn successful completion of this module students should be able to:
LAY A SOLID FOUNDATION FOR THE SCIENCE/ART OF INVESTMENT EMPLOY KEY ANALYTICAL SKILLS FOR INVESTMENT ANALYSIS DISTINGUISH BETWEEN INDIVIDUAL ASSET RISK AND SYSTEMATIC RISK PROVIDE MEASURES FOR EACH TYPE OF RISK ABILITY TO EVALUATE INVESTMENT UNDER UNCERTAINTY TO EVALUATE RISKY ASSETS PRICE FINANCIAL DERIVATIVE SUCH AS STOCK OPTIONS.
UPON COMPLETING THIS MODULE, YOU WILL BE ABLE TO CARRY OUT FUNDAMENTAL ANALYSIS OF KEY ASPECTS OF CAPITAL MARKETS, USING ANALYTIC TECHNIQUES INTRODUCED IN THIS MODULE
Equip you with the necessary tools in studying the financial markets and conducting investments under uncertainty. To enable you to evaluate personal and institutional investments, carry out fundamental analysis of capital budgeting under uncertainty, the valuation of basic derivative assets such as options and conduct basic analysis of term structure of interest rates.
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, the theory of bond and term structure of interest rates.
Key concepts: risk and return, mean and variance, correlation coefficient, diversification principle, risk-return trade-off lines, minimum variance portfolio, the tangency portfolio, utility of wealth, expected utility, risk aversion, indifference curve, optimal portfolio.
Readings: Sharpe, chapters 6, 7, 8; Merton, chapters 10.1, 10.7, 11.10, 12; Elton & Gruber, chapters 4, 5, 6 and 10.
Capital Asset Pricing Model (CAPM)
Key concepts: market portfolio, capital market line, security market line, covariance, Beta.
Readings: Sharpe, chapter 9; Merton, chapter 13; Elton & Gruber, chapter 13.
Option pricing theory
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.
Readings: Sharpe, chapter 19; Merton, chpater 15; Elton & Gruber, chapter 22.
Bond and term structure theoies
Key concepts: spot rates, forward rates, yield curves, theories of interest rate.
Readings: Sharpe, chapter 5; Merton, chapter 8; Elton & Gruber, chapter 20.
** Recommended Text
Elton & Gruber, Brown & Goetzmann (2003) Modern Portfolio Theory and Investment Analysis
6th edition. John Wiley
Bodie and Merton (2000) Finance
Sharpe, Alexander and Bailey (1999) Investments
6th edition. Prentice Hall
** Supplementary Text
Ross, Westerfield and Jaffe (2005) Corporate Finance
7th edition International. McGraw-Hill
Bodie, Kane and Markus (2002) Investments
International edition. McGraw Hill
This module is at CQFW Level 6