COMM 324 Investment and Portfolio Management Fall 2005 Instructor: Wulin Suo Telephone: 533-2337 Email: [email protected]

Office Hours: TBA Class (Section A): Mon 11:30 a.m.-1:00 p.m., Th 1:00-2:30 p.m. Class (Section B): Mon 2:30-4:00 p.m., Th 4:00-5:30 p.m. Classroom: GDS 301

Required: Textbook: Bodie, et al. Investments, 5th Canadian Edition (Students are encouraged by buy the new edition. However, 4th Canadian Edition should be good enough). Other reading materials will be distributed in class. Other Suggested Reading Materials: It will help you a lot if you follow the financial market by reading Wall Street Journal or Financial Times when you are on the job market. The following books are nice readings: B.G. Malkiel, A Random Walk Down Wall Street J.J. Siegel, Stocks For The Long Run R.J. Shiller, Irrational Exuberance Course Objective: The area of finance can primarily be viewed from three perspectives 1. Individual making decisions to supply capital to markets; 2. Firms demanding capital from the market and deciding how to raise and use the funds; 3. The capital market acting as a pricing mechanism to clear demand and supply. This course focuses on (1) and (3). We will examine how individuals and their agents make choices among investment alternatives which have different uncertain payoffs in the future. An understanding of risk and return for individual securities and portfolio of securities is used to characterize these decisions. We will concentrate primarily on bonds and stocks, with a brief introduction to derivatives (which are covered more fully in Commerce 321). The course combines traditional academic objectives with a practitioner’s overview of the investment management business from the real-world perspective of an institutional investor. The course is designed for students who are finance majors or others interested in learning more about investments. Course Prerequisites: Students are expected to have completed Commerce 121 & 122 Class Participations: An important part of any successful business career is the ability to communicate ideas effectively. Since the classroom is one of the easiest forums to cultivate this talent, participation in discussions in the classroom are expected toward your Quiz/Participation mark. Marks will be assigned based on the student’s contribution to classroom discussions. Feedbacks regarding the pace of the class and difficulty level of the materials or any suggestions that you think will improve the course will be appreciated. Selected readings will be distributed in class. Class Attendance: Although it is not mandatory, it is important for you to attend the classes. You are responsible for announcements made in class; consult a classmate if you are absent. Quick quizzes will be given in class unannounced in advance. Please feel free to bring a calculator, but one is not required, since the calculations, if there is any, will be fairly easy. I will also randomly ask students to offer opinions regarding the topics being discussed. If for some reasons you cannot attend a class, please send me an email explaining the situation. I will not accept any excuses after it happens. Classes sometimes involve working through problems. Moreover, some lectures will go beyond the scope in the textbook.

Grading: Assignments Quiz/Participation: Project Midterm Exam1 Final Exam

15% 10% 10% 25% 40%

Projects: Portfolio Simulation Report: This is an individual project. An account is needed to be setup at http://www.stocktrak.com. Choose the Silver Account and you should get a $5 discount. Each student is required to manage a portfolio of $1,000,000, with maximum of 200 trades during the term. This is a simulation of portfolio management, and it works as if you were managing a real portfolio. You can trade stocks, bonds, and derivatives, among other instruments through different exchanges in the world. The purpose of this project is to let students get familiar with how to manage a real portfolio, and apply the knowledge that have been accumulated through the finance courses they have taken. In the beginning of this course, you can set up your portfolio and make trades anyway you like. However, as the class progresses, you should setup your portfolio from a fund manager’s perspective. The final grade will not depend on one’s actual portfolio performance, but on the trading activities and the justifications in the final written report submitted for this project. The top 5 portfolio performer will be announced at the last class, and will be given a 5 bonus marks toward the final grad. More on the requirements of the final report will be distributed in class later. Quiz: There will be some unannounced 5 minute quiz before class. Questions can include the concepts we have covered, the reading material that are distributed in the previous class, or the materials just about to be covered during THAT class. In other words, you are encouraged to quickly go through the materials in the textbook we are going to cover. Assignments: There will be 4 assignments. You are welcome to work together; however, each student is required to submit his/her own copy of each assignment. Assignments should be handed in at the beginning of the class. I will not accept faxed/emailed copies under any circumstances. The assignments will be graded, and the answers to the questions will be posted on the course website. Another incentive for doing the assignments is that some of the problems in the exams will be taken directly from your assignment questions (with minor changes). Class Web Site: There will be a website for this class. Slides for the class will be included in the course package. Slides will be posted on the website before each class. They are NOT intended to use as class notes (there will be no details on the slides). For this reason, you are encouraged to take notes during classes. Discussion Group: You are encouraged to use the discussion board to post questions, or answer questions raised by other students. I will try to answer them there as quickly as possible. Useful Web Sites: There are some very useful web sites listed at http://finance.business.queensu.ca/~wsuo/fin_industry.html.

1

Midterm exam is scheduled on Oct 24. Please do not arrange any job interview on that day (recruiters have agreed not to hold recruiting events on that day). There will be no make-up midterm exam. If you have to miss it, please let me know in advance so that your final exam would count for 65% toward your final grade.

COMM 324 Tentative Course Outline Date

Topic

Readings/Announcements

Book Keeping Brief history of investments Financial instruments and their characteristics Measuring risk and returns: Brief review of probability and linear regressions Risk aversion and utility function Capital allocation: between risk-free asset and risky assets; capital allocation Diversification; Markowitz portfolio selection CAPM; indices

Stock trading rules for the simulation project from stock-trak.com Ch 2 & 3

12/09/2005

1

15/09/2005

2

19/09/2005

3

22/09/2005 26/09/2005

4 5

29/09/2005

6

03/10/2005

7

06/10/2005 10/10/2005

8

13/10/2005 17/10/2005

9 10

20/10/2005 24/10/2005 27/10/2005 31/10/2005

11 12 13 14

Bond price and yields Midterm Bond risk measures

03/11/2005 07/11/2005 10/11/2005 14/11/2005 17/11/2005 21/11/2005 24/11/2005

15 16 17 18 19 20 21

28/11/2005 01/12/2005 05/12/2005

22 23 24

Bond portfolio management Fundamental analysis I Fundamental analysis II Technical analysis Options/Futures - overview Derivative valuations: introduction Simple trading strategies using derivatives Performance measures mutual fund performance & Hedge funds strategies

Index models Thanksgiving Day: CLASS CANCELLED APT models Market efficiency and anomalies

Ch 5 & Appendix A

Ch 5.5 Ch 6.1-6.6

Ch 6.7-6.10 Ch 7.1-7.2; Ch 10.1-10.2 Assignment 1 due Ch 8.1-8.4

Ch 8.5-8.8 Ch 9 Assignment 2 due Ch 11 Ch 13.1-13.3 Ch 13.4-13.5 Ch 14 & Ch 15 Assignment 3 due Ch 16 Ch 17 & Ch 19

Ch 18 Handouts Ch 20 Project report due; Assignment 4 due Ch 4 & Handouts