Lahore University of Management Sciences

FINN 451 Investments

Fall 2013

Instructor Dr. Fazal Jawad Seyyed, CFA

Room No. 208-SDSB
Office Hours TBA
Email fazal.jawad@lums.edu.pk
Telephone 042-3560-8030
Secretary/TA Saleem A. Khan/TBA
TA Office Hours TBA
Course URL (if any) LMS

Course Basics
Credit Hours 3
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 75 Minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week Duration
Tutorial (per week) Nbr of Lec(s) Per Week Duration

Course Distribution
Core -
Elective Elective
Open for Student Category Junior/Senior
Close for Student Category

COURSE DESCRIPTION

An introductory course in the analysis of investments and portfolio management. The course examines alternative investment
opportunities available in modern financial markets, functioning of securities markets, diversification concepts, asset pricing models,
analytical techniques for valuation of stocks and fixed income securities using fundamental and technical analysis, portfolio
construction and evaluation, and introduction to derivative securities. Central to the investment selection and management process is
the notion of portfolio diversification. We will consider how investors allocate their funds by forming and managing portfolios
containing stocks, bonds, mutual funds, and alternative investment products. Students are also introduced to the major portfolio
management strategies and investment styles pursed by professional investors. The course focus is on application of theory to the
practice of investment management.

COURSE PREREQUISITE(S)

Principles of Corporate Finance

COURSE OBJECTIVES
The course attempts to:
Familiarize students with the nature and operations of capital markets and trading of securities and other investment
vehicles.
Expose students to the theoretical underpinnings of investment analysis and portfolio concepts within the context of modern
portfolio theory and its extensions.
Enhance students understanding of procedures involved in analyzing investment alternatives under conditions of uncertain
outcomes.
Develop student ability to use empirical evidence, theoretical constructs, and insights from practice to manage investments.
Expose students to alternative methodologies to evaluate portfolio performance.
Provide overview of derivative markets and instruments with special attention to their application in managing portfolio risk.
Motivate students to develop interest in the field of investments and to encourage them to consider professional
qualifications such as CFA.
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Learning Outcomes

Upon successful completion of this course, students should:

be familiar with the functioning of capital markets, trading of securities, market indexes, and role of investment companies;
have acquired knowledge, skills, and understanding of the fundamental concepts and mainstream theories and practices in
investment analysis and portfolio management;
be able to conduct fundamental analysis to appraise company performance using economic, industry, and company data,
evaluate fixed income and alternative securities as potential investments;
be familiar with the portfolio construction, monitoring, and performance evaluation processes within the context of modern
portfolio theory and its extensions; and
have basic understanding of derivative markets and their application in management of portfolio risk.

Grading Breakup and Policy

Final grade break-down:

Source % of Total
Class Attendance and Participation 10
Quizzes and Assignments 20
Group Projects 15
Mid-Term Exam 25
Final Examination (comprehensive) 30
Total 100

Class Participation and Attendance: Students are expected to attend all classes. If you are not present at the beginning of a class or leave class
during the session without instructors prior permission, you will be considered absent for the day. You must review the assigned materials in
advance of the class in order to contribute meaningfully to class discussions. A significant portion of the course grade depends on the quality and
level of your involvement and input in class discussions.

Quizzes: Several unannounced quizzes will be given on the assigned material during the term. No make-up quizzes will be given. However, the
lowest quiz grade including a zero for a missed quiz will be disregarded.

Assignments: There will be several graded assignments during the term to reinforce financial concepts and to encourage usage of spreadsheets
such as Excel in performing financial analysis. The format and other requirements will be specified by the instructor. All assignments must be
submitted on the due date. Late submissions will not be accepted. In addition, non-graded end-of-chapter problems may be assigned to stimulate
class discussions.

Group Projects: Students are required to form teams of 3-4 students (depending on class size) by session 4 for group tasks. (i) Sector Report:
Each group will select an industry sector/subsector and perform industry and fundamental analysis of at least 2 leading companies in that sector.
th
The sectors for the analysis must be approved by the instructor. The sector analysis reports will be due at the beginning of the 27 class session.
Late submissions will not be accepted. A peer evaluation form will be provided to evaluate contribution of each group member. Your peer
evaluation will impact your grade on the project report. (ii) Money Masters Report: Multiple teams will be assigned an investment guru from
the Money Masters to prepare a brief writ-up and be ready for a presentation on the assigned person as per the class schedule. The presentation
should focus on the investment strategies, investment insights (Dos and Donts of investments), including key personal traits. Students are
encouraged to use the Internet to obtain more current information.

Examinations: Both exams (mid-term and final) will comprise a blend of MCQs and open-ended questions/problems or case-like situations.

Calculator Requirement: You will need a financial calculator capable of performing present value/future value functions. For example, Texas
Instrument BA II meets these criteria. Many other brands are equally suitable for this course.
 Lahore University of Management Sciences
Examination Detail

Yes/No: Yes
Combine Separate: - N/A
Midterm
Duration: 2 Hours
Exam
Preferred Date: Week 8
Exam Specifications:

Yes/No: Yes
Combine Separate: N/A
Final Exam
Duration: 2 Hours
Exam Specifications:

COURSE OVERVIEW/SCHEDULE
Lecture/ Recommended Objectives/
Topics
Module Readings Application
Module 1: Overview of Investment Environment and Management Process
Investments: Backgrounds and Issues BKM Ch 1,2 Overview of investment environment, type of financial
Session 1 Asset Classes and Financial Instruments markets, and introduction to the portfolio construction
process.
Asset Classes and Financial Instruments: BKM Ch 2 Examine the various asset classes, instruments, and
Session 2
Stock and Bond Market Indexes understand the use and construction of market indexes.
Functioning of Security Markets and Trading BKM Ch 3 Review the functioning of financial markets and its key
Session 3 Mechanisms players.

Functioning of Security Markets and Trading BKM Ch 3 Understand the trading practices in stock exchanges and
Session 4 Mechanisms mechanics of buying on margin and short selling.

Mutual Funds and Other Investment BKM Ch 4 Examine the benefits of investing through investment
Companies companies, classification of mutual funds by objectives and
Session 5
styles, fee structures, and performance.

Mutual Funds and Other Investment
Session 6 Companies Pakistani Context
The Investment Management Process
The Investment Management Process
Session 7
Module 2: Portfolio Theory and Asset Pricing
Risk and Return: Past and Prologue
Session 8 Efficient Diversification
BKM Ch 4 Review the mutual funds industry of Pakistan. Overview of
the portfolio management process.
BKM Ch 22
BKM Ch 22 Learn to develop Investment Policy Statement (IPS) for
individual and institutional investors.
BKM Ch 5,6 Review historical risk-return relationship, modern portfolio
theory, and estimation of risk measures.

Diversification and Portfolio Risk BKM Ch 6 Develop understanding to construct optimal portfolios, and
Session 9 Single Index Model and Beta Estimation use index models to analyze risk characteristics of
securities and portfolios.
Capital Asset Pricing and Arbitrage Pricing BKM Ch 7 Understand the implications of capital market theory for
Session 10 Theory asset pricing, use security market line, APT and multifactor
models to identify mispriced securities.
Bond Prices and Yields BKM Ch 10 Develop understanding of the bond markets, pricing and
Session 11 yield determination, and how different bond features
impact bond yields.
Managing Bond Portfolios BKM Ch 11 Analyze bond features impacting price sensitivity to
Session 12
interest rates using duration and convexity measures.
Managing Bond Portfolios BKM Ch 11 Evaluate active versus passive bond portfolio strategies and
Session 13
immunization for various investment horizons.
 Lahore University of Management Sciences
Module 3: Investment Analysis, Empirical Evidence and Investment Strategies
Macroeconomic and Industry Analysis BKM Ch 12 Analyze the effects of macroeconomic and industry factors
Session 14 on firm performance and industry earning prospects over
time.
Macroeconomic and Industry Analysis BKM Ch 12 Understand the relevance of macroeconomic and industry
Session 15
Applications of Fundamental Analysis factors in fundamental analysis the Top-Down approach.
Equity Valuation Discounted Cash Flow BKM Ch 13 Apply discounted cash flow models and alternative
Session 16
Models approaches to value securities.
Equity Valuation Other Valuation BKM Ch 13 Examine relative and other security valuation
Session 17
Approaches methodologies.
The Efficient Market Hypothesis (EMH) BKM Ch 8 Review empirical evidence that supports and conflicts with
Session 18
the efficient market hypothesis.
EMH Implications for Portfolio Strategies BKM Ch 8 Evaluate the implications of EMH for portfolio management
Session 19
strategies.
Investment Styles: Value versus Growth Class Notes Examine the major investment styles of value and growth
Session 20
& Reading and their track record.
Selection from Money Masters: Warren Money Learning the money masters (the Dos and Donts);
Session 21 Buffett, T. Rowe Price, Jim Rogers, and Peter Masters Student Group Presentations
Lynch
Behavioral Finance and Technical Analysis BKM Ch 9 Review the behavioral finance critique of standard finance
Session 22
and its relevance for investments.
Technical Analysis Momentum Trading BKM Ch 9 Overview of technical analysis tools and mechanics of
Session 23
momentum trading.
Module 4: Portfolio Performance Evaluation and Other Topics
Portfolio Performance Evaluation BKM Ch 18 Understand various risk-adjusted measures to evaluate
performance and decompose portfolio return into
Session 24
components attributable to asset allocation and security
selection.
Globalization and International Investing BKM Ch 19 Examine the benefits and risks of international portfolio
Session 25
investments with special reference to emerging markets.
Overview of Options Markets BKM Ch 15, Overview of the options market and their usage in changing
Session 26
16 the portfolio risk profile.
Futures Markets and Risk Management BKM Ch 17 Understand the use of derivatives in managing portfolio
Session 27
risk.
Session 28 Final Exam Review
Final Examination (Comprehensive)

Textbook(s)/Supplementary Readings

Required Text:
Bodie, Kane, and Marcus, Essentials of Investments, 8th Edition, McGraw Hill, 2010. (BKM)
Selected readings from The Money Masters and The New Money Masters by John Train, 1980 and 1989, respectively.

Other Reference Books:

th
Reilly, Frank and Brown, K., Investment Analysis and Portfolio Management, 8 Edition, Thomson South-Western, 2006. ( RB - selected
chapters only)
th
Malkiel, Burton, A Random Walk Down Wall Street: The Time Tested Strategy for Successful Investing, 10 Edition, W. W. Norton &
Company, 2012.

Supplementary Readings:
Students are encouraged to read financial publications such as The Wall Street Journal, Financial Times; Business Recorder to stay
abreast of developments related to this course.
Supplemental readings in the form of notes or articles on investments with practical and topical applications may be posted on the
course website from time to time.