Fe445 syllabus 2022 PDF

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BOSTON UNIVERSITY Questrom School of Business FE 445 - Investment Analysis SYLLABUS v 1/18/2022 ____________________________________________________________________________ John DeVoy, Lecturer Email: [email protected] Office room number: 522-A Office hours: 2:00-3:30 p.m. on Tuesdays, 1:00 p.m. - 2:00 p.m. on Wednesdays, or by appointment. Please contact me by email the night before to let me know you plan on attending! Classroom: HAR 315 (9:30 am section) HAR 310 (12:30 pm section) Textbook: Essentials of Investments by Zvi Bodie, Alex Kane and Alan J. Marcus (10 th,11th, or 12th Editions) Calculator: Recommend HP 10BII+, but any widely-used (non-graphing) financial calculator will be allowed Homework: McGraw Hill Connect Prerequisites: QST FE323 ____________________________________________________________________________ Description of the Course Introduction to the investment management process. Defining investment objectives and constraints. Introduction to Modern Portfolio Theory, CAPM, Fama-French factors, arbitrage pricing theory (APT), and efficient markets. The course will also cover issues related to specific asset classes, including stock and bond valuation models, and their applications. More broadly, FE 445 will review the key elements of passive and active investment strategies, including hedge fund strategies, as well as fundamental security analysis, trading practices, asset allocation, and performance evaluation. In addition, the course will introduce the role of forwards, futures, and options with respect to hedging and speculation. Students will come to understand the assumptions underlying the different investment approaches and their limitations. Finally, the course will devote time to topics related to current events and recent financial crises. Learning Outcomes At the conclusion of this course, students should be able to: • Describe the global investment landscape and explain the purposes of investments and the financial markets in society

• Describe the various categories of financial assets as well as their distinguishing characteristics, with specific focus on: - Money market instruments - Bonds and concepts related thereto - Equity instruments and associated hybrids - Derivative instruments (equity, fixed income, credit, and foreign exchange) • Describe the various forms of investment companies and vehicles as well as the distinguishing characteristics of their approaches to investing and portfolio management • Discuss the critical considerations related to managing single asset class portfolios, especially their associated investment/financial risks and constraints; evaluate portfolio performance and risk • Explain the principles of asset allocation in the context of a mean-variance space; describe the underpinning assumptions and limitations of the capital asset pricing model • Describe the various forms of the efficient market hypothesis and contrast these forms with the tenets of behavioral finance • Discuss the arguments for and against passive and/or active investment management • Synthesize and analyze critically news articles and/or opinion pieces related to any of the topics covered in this course At the conclusion of this course, students should be able to: • Describe the global investment landscape and explain the purposes of investments and the financial markets in society • Describe the various categories of financial assets as well as their distinguishing characteristics, with specific focus on: - Money market instruments - Bonds and concepts related thereto - Equity instruments and associated hybrids - Derivative instruments (equity, fixed income, credit, and foreign exchange) • Describe the various forms of investment companies and vehicles as well as the distinguishing characteristics of their approaches to investing and portfolio management • Discuss the critical considerations related to managing single asset class portfolios, especially their associated investment/financial risks and constraints; evaluate portfolio performance and risk • Explain the principles of asset allocation in the context of a mean-variance space; describe the underpinning assumptions and limitations of the capital asset pricing model • Describe the various forms of the efficient market hypothesis and contrast these forms with the tenets of behavioral finance • Discuss the arguments for and against passive and/or active investment management

• Synthesize and analyze critically news articles and/or opinion pieces related to any of the topics covered in this course Course Web Site on Questrom Tools There is one site for your section on QTools. This site will be used to post announcements, classroom presentation materials, assignments, and course updates. I will make every effort to post the class materials in a timely manner so that you can download them and bring them to class. You will be responsible for any changes to due dates or assignments posted to the course site. Textbook The required textbook for the course is Essentials of Investments by Zvi Bodie, Alex Kane and Alan J. Marcus [note: you may choose to use either the 10th, 11th or 12th edition of this textbook]. The book contains a formal presentation of most of the material covered in class. It also provides many examples that help students follow the discussion. In addition to the conventional textbook, the publisher has produced a reduced cost variant for the benefit of FE 445 students. The Barnes and Noble bookstore carries the latest version of this textbook. During the course, I will be posting on Questrom Tools additional reading material, including the PowerPoint slides shown in class. I recommend reading the financial press for current topics/ business cases evolving in parallel with the class. Prerequisites We will heavily build on the prerequisite core class FE 323. If needed, please review “Fundamentals of Corporate Finance” Ross, Westerfield, and Jordan. You also need to be familiar with basic concepts in probability and statistics (e.g. SM 221). If you have problems even after reviewing the material from previous classes, please come to office hours. You are also expected to be comfortable using Excel tools (calculation and graphing), and a financial calculator. If you have problems using Excel or a calculator, please make up for this on your own as soon as possible. Course Requirements Connect Homework: You will be given regular homework on McGraw Hill’s Connect Website. I will walk you through registration during the first class. The problems chosen are designed to mirror the most important concepts you must learn for exams, but you are responsible for all concepts in the assigned reading, whether or not we cover them in class or have homework problems assigned! Investment Portfolio Exercise: Throughout the semester, teams of 5-6 students will each manage a virtual portfolio comprised of fixed income and equity securities. Teams may make trades on any business day. At the end of the semester, each team will make a brief presentation on its strategy, its performance, and “lessons learned”. Further details regarding this exercise will be available within the Resources section of the course’s site on Questrom Tools by the end of the first week of class. Exams:

The schedule of the exams is given below along with the schedule of topics. There are two exams, the mid-term will be completed in class if allowed by policy, and the final will be during final exam week. There are no make-up exams, unless for exceptions allowed by Boston University. Under those exceptional conditions, if a student misses the mid-term, the final exam’s weight increases by the weight of the mid-term. Attendance: All students are expected to be in class, fully prepared, and to actively participate in class. Please bring your calculator to every class since we do practice problems in class. Please, turn off all cell phones and/or pagers while in class. Review Session There will be a review session before the final exam. The agenda of this session will be at the discretion of the students, but I will be prepared to facilitate a problem-solving session using one or more practice exams in the absence of other suggestions for exam review. Grading Course evaluation is based on: • Homework and Class Participation: 15% • Portfolio Exercise: 20% • Mid-term Exam: 30% • Final Exam: 35% Academic Honesty/Title IX You have the responsibility of promoting high academic standards. Academic dishonesty includes cheating, falsifications and fabrications, multiple submissions, plagiarism, complicity in academic dishonesty. Cases of academic dishonesty will be treated to the full extent according to University guidelines. Title IX of the Education Amendments of 1972 is a federal civil rights law that prohibits sex-based discrimination in federally funded education programs and activities. This law makes it clear that violence and harassment based on sex and gender is a Civil Rights offense subject to the same kinds of accountability and the same kinds of support applied to offenses against other protected categories such as race, national origin, etc. If you or someone you know has been harassed or assaulted, you can find the appropriate resources at http://www.bu.edu/safety/sexual-misconduct. Diversity and Inclusion In developing this course, I have aimed to be thoughtful about how identity and culture impact the course content. I invite you to share your personal experiences and perspective related to the course content. If there are topics or conversations that you feel would benefit from incorporation of social context, a differing perspective, or Questrom’s Office of Diversity & Inclusion, please so inform me in

writing and I will explore resources and opportunities for us to engage a wide variety of perspectives in our classroom. Accommodation for Disabilities In keeping with University policy, any student with a disability who needs or thinks they need academic accommodations must call the Office of Disability Services at 353-3658 or stop by 19 Deerfield Street to arrange a confidential appointment with a Disability Services staff member. Accommodation letters must be delivered to me in a timely fashion (within two weeks of the date on the letter and not later than two weeks before any major examination). Please note that accommodations will not be delivered absent an official letter of accommodation. Questrom Community Syllabus Statement In addition to the expectations outlined in the COVID-19 Health Commitments & Expectations for Boston University Students, we expect all members of our Questrom community to adhere to the following classroom norms: • Use the wipes provided in classrooms to clean desktops and other spaces before and after use. • Wear an appropriate personal protection equipment (PPE) face covering when in the Hariri building, including in the Hariri classrooms and offices. Students not wearing a face covering will be asked to leave and are expected to comply with the request. • Be willing to display your “green screen” compliance app upon request (e.g., in class or for a meeting). • Eat only in the designated locations in the Rafik B. Hariri Building. Eating is NOT permitted in the classrooms. Eating in only permitted in Starbuck/Breadwinners and in student lounges. Only drinking with a straw is permitted in classrooms. • Attend class remotely (through lecture recordings) if your behavior outside of the classroom might put others in the community at risk. Adhering to these norms will allow us to continue to enjoy a residential learning experience. Course Recording Policy All class sessions will be recorded for the benefit of registered students who are unable to attend live sessions due to time zone differences, illness or other special circumstances. Recorded sessions will be made available to registered students ONLY via their password-protected QuestromTools account. Students may not share such sessions with anyone not registered in the course and may not repost them in a public platform. Students have the right to opt-out of being part of the class recording. Please contact your instructor or teaching assistant to discuss options for attending the course in such cases. More information on this topic is available at https://digital.bu.edu/lfa-classroom-recordings/. Links to Outside Data Sources Here are some potentially useful sources of information on financial markets and/or securities: Exchanges:

• NYSE: https://www.nyse.com • Chicago Mercantile Exchange: http://www.cmegroup.com • NASDAQ OMX PHLX (formerly) Philadelphia Stock Exchange: http://www.nasdaqtrader.com/Micro.aspx?id=phlx • London International Financial Futures Exchange (now part of NYSE Euronext): https://derivatives.euronext.com/en/products/currencies Global Economy / Central Banks: • European Central Bank: http://www.ecb.europa.eu/euro/html/index.en.html (official site with euro conversion calculator) • Bank for International Settlements: http://www.bis.org/cbanks.htm (central bank resource center) • International Economics Gateway: http://altaplana.com/Gate.national.html (directory of national governments’ statistical pages) • World Trade Organization: https://www.wto.org/english/res_e/statis_e/statis_e.htm (international trade statistics) • Global Financial Data: http://www.globalfinancialdata.com Other Sources of Data and/or Information: • iShares: http://www.ishares.com/us/ • Morningstar: www.morningstar.com • The Economist: http://www.economist.com • Company data: finance.yahoo.com • SEC filings: www.sec.gov/edgar.shtml • Derivatives’ market volume data: http://www.bis.org/statistics/derstats.htm • Standard and Poor’s http://www.standardandpoors.com/home/en/us • Investopedia: https://www.investopedia.com/dictionary/ (dictionary of financial terms/concepts, including derivatives) • Vanguard: https://personal.vanguard.com/us/insights/newsarchive (topics on personal investing) FE 445 - Investment Analysis COURSE OUTLINE

(Subject to Change with at least two weeks notice) Class #

Date

Topic

Readings

20-Jan

Introduction to the Investment Process, Asset and Security Classes

1: 1-4 Article

2 3

25-Jan 27-Jan

Investment Companies, Mutual Funds and ETFs Short-Term Investments and Liquidity

4: 1-6 22 1: 6, 2: 1

4

1-Feb

Trading, Margin, and Short Sales

3: 1-9 S 3: 10 Article

5

3-Feb

Performance of Securities

6

8-Feb

Investment Risks and The Complete Portfolio

5: 4-6

7

10-Feb

Efficient Diversification and The Optimal Risky Portfolio

6: 1-4

8

15-Feb

Index Models and The Capital Asset Pricing Mode

6: 5, 7: 1-3

9 10

17-Feb 24-Feb

Fama-French Factors Arbitrage Pricing Theory, Market Indices

7: 4-5 Article 18: 1-3

11 12

1-Mar 3-Mar

13

15-Mar

1

Evaluating Portfolios, Alpha Market Efficiency [Mid-Term Exam] Equity Ownership and Equity Valuation: Dividend Discount Models

5: 1-3 Article

18: 4-5 (S: 8.6) Article 8 2: 3, 13: 1-3 13: 4-6 Article 2: 2, 10: 1-4, 6 11: 1-3 S: 11: 4

14

17-Mar

15

22-Mar

Equity Valuation: Price-Earnings Ratios Bond Market Overview Prices, Yields, and the Yield Curve

16

24-Mar

Duration and Managing Bond Portfolios

17

29-Mar

Credit and Default Risk, Credit Default Swaps

10: 5 Articles

18 19

31-Mar 5-Apr

Behavioral Finance Risk Arbitrage Bubbles and the 2008-2009 Crisis

9: 1 S 9: 2 Article 1: 7 Articles

20

7-Apr

International Investments, Introduction to Foreign Exchange

12: 1, 19: 1-3 S 19: 4

21 22

12-Apr 14-Apr

Forwards and Futures Option Basics, Embedded Options

2: 5, 17: 1-5 S 17: 6 15: 1-3

23

19-Apr

Option Pricing

16: 1-2, 4 S 16: 3 Article

24 25 26 27

21-Apr 26-Apr 28-Apr 3-May

Hedge Funds Team Presentations Final Exam Review Topic of Your Choice (Voted by Class)

20 Article

* Reading assignments will also include web-based articles, with links to be posted to the website....