Course Syllabus

Course ObjectiveThis course provides a comprehensive coverage of the basic concepts, theories, and decision-making rules for financial investments. Students taking this course should expect to acquire skills in valuation techniques, the pricing of fixed-income securities, equities, as well as the principles of finance, including arbitrage, market efficiency, asset pricing models and portfolio theory, primarily portfolio selection and management on the basis of risk and return. The course will also provide an introduction to the institutions and the instruments commonly used to raise money.

Pre-requisitesCore Corporate Finance course. There will be no significant overlap, but we will have a refresher on the principles of corporate finance.Teaching Material1. Investments: Reilly Frank K. and Brown Keith C., Investment Analysis and Portfolio Management, Eighth Edition, Cengage Learning, New York, 2006.2. Referencesa. Modern Portfolio Theory And Investment Analysis, 7th Ed, Edwin J. Elton, Martin J. Gruber, Stephen J. Brown, William N. Goetzmannb. Frank J. Fabozzi, ed., The Handbook of Fixed Income Securities, 3rd Ed.Readings1. Does Asset Allocation Policy explain 40, 90 or 100 Percent of Performance2. What Drives Long term equity Returns (Barra Research)3. The fundamentals of fundamental factor models (Factor analysis, APT)4. Indian_Savings and Bond_Market5. FCFE valuation from Valuations by Aswath Damodaran6. Technical Analysis Note: Darden publishing7. Introduction to Valuation Multiples :HBS8. Are the markets really efficient, Mr.Markowitz : Book extract.9. NCFM material on capital markets module. (to be downloaded by the students themselves)10. RBI extracts.

Cases and general readings

1. The Bernard Madoff Financial Scam2. Gold as a long term investment Fading glitter?3. Darden Capital Management the Monticello Fund4. Investment Management at Harvard management Company- ICMR5. Does the CAPM work?

Other readings (optional) will be distributed depending on the interest of the class.

Class Preparation:It is expected that students will come prepared to class, and material covered in the assigned textbook readings will generally not be repeated in class. Class time will be devoted to lecture and case discussion, applying the material covered in the readings.

Course OutlineThe course will cover the following topics1. Utility Theory, Mean Variance Portfolio Theory2. Single Index Models, Capital Asset Pricing Model, APT, Factor Models3. Asset Allocation; Portfolio Construction4. Market Efficiency: Random Walk Theory5. Equities: Determinants of Value/Industry Analysisand Valuation/Fundamental and Technical Analysis6. Fixed Income Security Analysis 7. Performance measurement time weighted, money weighted measures, ratios.8. Derivatives (more from an investment perspective, knowledge of OFD is assumed)

Grading PatternThe course grade will be determined as follows:Midterm 30 % (Date to be informed by Office)End term 30 % (Date to be informed by Office)Class Quiz (best 2 of 3) 8% (Surprise Quizzes)Class Activity (Case CP)7% (Group activities)Assignment15 % (Group homework, dates to be informed in class)Presentations10% (Topics will be distributed in the 2nd week)

Mid term dates will be announced by the PGP office it is likely to be in the break between the 9th and 11th sessions.

Syllabus and Course Schedule

SessionsTopics

1

2

3 and 4

Introduction to terms in investment analysis, institutions in financial markets and instruments such as bonds, equity, short and medium term instruments of borrowing etcBasics of valuation recap of corporate finance basics. Valuation of equity, Valuation of bonds, calculating yields, FCFE methods

Group team names to be provided .

Utility Theory, Types of utility functions. Characteristics of Utility functions. Maximization of expected utility, Risk aversion and certainty equivalent. Commonly used utility functions, coefficient of risk aversion, InsuranceKnow your investor questionnaire activity; Read: Gold fading glitter; Does Asset Allocation explain 40,50 or 90%Chapter 1, 2, Chapter 3 (section on Global investment options pg 79-90 only) and appendix 3 on covariance and correlation, chapter 4 pg 125-130 (types of orders and margin). Chapter 5 (till pg 162 ) types of indices (will be covered in student presentations)Additional optional reading from NCFM material on capital markets (will be covered in student presentations)

5,6

Introduction to Portfolio Theory: Risk and Return. Measures of Risk, measures of return. Capital Allocation between Risky and Risk Free AssetMean Variance efficiency - Markowitz optimal portfolio selectionTrading activity commences; Barra research : the fundamentals of fundamental factor modelsAssignment 1 will be provided on 29th Jun. Due 8th Jul midnightChapter 7

7,8

Introduction to the Capital Asset Pricing Model, Beta of companies, using beta to value stocks, Single Index and Multifactor Models, other models of stock valuation. Activity Case Monticello fund; Does the CAPM workReading: what drives long term returnsChapter 8, 9

9,10

Efficient markets hypothesis, Portfolio Strategy and Asset Allocation; Fundamental and technical analysisTechnical Analysis note; Valuation by damodaran; Valuation multiples note; Discussion: Are markets really efficient Mr.MarkowitzChapter 6 (recap), 10-15 (review of FSA), 16

Mid Term Exams

11,12Portfolio performance evaluation, measures to evaluate portfoliosMutual Fund performance case Harvard Management Company;Assignment 2 will be provided on 14th Jul. Due 5th Aug midnight.Chapter 17,26

13,14, 15, 16Fixed Income Security valuation; valuation of bonds, yields, running yield, YTMTerm Structure of Interest rates.Bond valuation: advanced topics such as Duration, Immunization, etc.Assignment 3 will be provided on 10th Aug, due 24th Aug midnight.Chapter 17,18,19,20

17,18

19,20Project Analysis presentationsDerivatives, hedging and Wrap up Chapter 21,22Hedging activityTrading activity ends: portfolios to be submitted by 25th Aug midnight.