MGT 3412
FALL 2012
Fundamentals of Investments
Instructor: Dr. Rossitsa Yalamova
Office: M4133; Tel: (403) 380-1899
Class: M2044: M-W 9:25 - 10:40
Office hours: M-W 10 :45–12:00
Email: rossitsa.yalamova@uleth.ca
CFMRT coordinator: Lynda Thai-Baird (M-2101),
Course Prerequisite: MGT3040 and ECON2900/STAT2780
Goals
To provide students with a good understanding of the operation of security markets, the types of
securities traded in them and the theory, concepts and models underlying investment analysis and
management in preparation for more advanced study.
Course Objectives
This course is designed to provide students with a sound overview of the investment
management in Canadian Capital Markets. Throughout the course theory and practice will be
emphasized within the framework of the portfolio management process. It describes the financial
markets and the instruments traded in them. Content includes valuation of stocks and how shares
are traded in the equity market; concepts of risk and return, diversification and optimal portfolio
formation; fixed income securities, options and futures; valuation and management of fixed
income securities, options and futures and simple techniques of hedging risk. Where relevant, the
course makes use of current media events to discuss the foregoing topics based on finance
theory.
Course Format
Lectures, class discussion, assignments and examinations. The format of the course will be an
interactive-lecture format. This means that students are expected to participate in class, and
success in this course will depend on your studying the material before each class meeting.
Class attendance is mandatory. Homework is not collected, but students not attempting the endof-chapter problems have historically done very poorly on exams.
Learning Outcomes
Upon successful completion of the course students will be expected to:
 Describe the major financial markets and financial instruments in Canada
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 Demonstrate knowledge of the theory underpinning risk and return both for individual
securities and portfolios
 Demonstrate knowledge of the basics of security asset pricing
 Recognize and understand the principles underlying risk management and derivative
securities
 Develop the ability to reason out investment issues for themselves and thus be better
prepared when making real world investment decisions
Course Material
1. Textbook- Investment Analysis and Portfolio Management, (First Canadian
Edition): Frank K. Reilly, Keith C. Brown, Peggy L. Hedges , and Philip C. Chang;
Published by Nelson Education Ltd; 2010 ; ISBN: 0-17-650069-3
2. Financial Trading System (FTS) - FTS is a web-based software package that allows
you to participate in financial markets using real time data and various cases. All
students will have access to this software. The Real Time FTS Trader operational
manual is available in the Trading Room. It is also posted online here:
http://www.uleth.ca/management/special-services/trading-room/additional-resources
Two Real time trading projects (#1. How Securities are Traded, #2 Risk and Return)
will be assigned as per schedule.
3. Rotman Interactive Trader (RIT): is an application that simulates a stock exchange
and allows users to transact financial securities with each other on a real-time basis.
The user-friendly and transparent interface has been designed specifically to facilitate
the learning experience. Users will be able to see each step of transaction process occur
as they submit their orders to the market and trade with one another. Four Interactive
Markets Trading cases will be assigned as per schedule
4. Other readings - will be assigned and distributed occasionally, as deemed necessary
to enhance learning
Description
The purpose of this course is to introduce the student to the theory and practice of portfolio
management. Topics will include evaluation of equity securities, bonds, and international
investments. The course builds upon the material that was covered in FIN 3040 and FIN 3470.
Specifically, we will cover efficient markets theory, modern portfolio theory, asset pricing
models, portfolio management strategies, and portfolio performance evaluation. Attention will be
given to techniques used in building, managing, and evaluating the performance of portfolios of
securities within the constraints faced by institutional investors. Equity portfolio construction
will be analyzed through problems, assignments, and the study of research findings. Bond
portfolio management techniques will also be presented. Strategic and tactical asset allocation
decisions will be discussed within the framework of institutional portfolio management.
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A short test (30 minutes) will be given as per schedule below (the first test will be given on
September 17, 2012) to assess your performance on the materials assigned and/or covered in
class in the preceding weeks.
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In-class tests are on: September 19, September 26, October 10, October 22, November 7,
and November 28, 2012.
Trading project Risk and Return: (start on September 10) is due on September 24
Interactive Trading Case – AT2 - Microstructure is on October 3 (for grade).
Interactive Trading Case: EV2 - DDM Valuation October 31 (for grade).
Trading project: How Securities are Traded: starts October15 (due on November 14)
Interactive Trading Case: FI2 - Coupon Bonds November 14 (for grade).
Interactive Trading Case: PM 1 - Diversification November 26 (for grade).
This scheme should help you in developing a steady work habit throughout the course. If you
should miss a test without a legitimate excuse, you will be denied a make-up and get a score of
zero. If you are granted an opportunity for a make-up, secure an appointment with me ASAP so
that the make-up may be taken within a week's time. You must write the test during the assigned
time in the class. A total of 6 in class tests will be given during the term and ALL will be
counted towards your grade distribution (Total 36%). Each project would count 10% (Total
20%) and trading cases would count 5% each (Total 20%). In addition, class attendance and
participation will worth 10% of your final grade. An exam (14%) is scheduled on December 5,
2012. Note: In order to pass the course you must submit the projects assigned. Failure to
complete and submit any of the two assigned projects would be considered a failure in the
course (In other words the two trading projects are mandatory for students to complete
and submit to the instructor for grading in order to pass this course).
There will be no final examination. All tests are closed-books and closed-notes. However, you
are allowed to bring a calculator (only one of HP 10B II*, HP 12C or TI BA II+), and tables for
Interest Factors (PVIF, FVIF, PVIFA, FVIFA) during tests, if necessary. A formula sheet is
permitted during all tests. You must not write any commentaries and/or add any example or
solutions on the formula sheet. The formulas that are numbered in the text are only allowed to be
brought in during tests. Any deviations from this practice would be considered cheating and will
be dealt with according to U of L calendar policies. All tests must be submitted to the instructor
before you leave the classroom; otherwise a grade of zero will be recorded as your score. All
university of Lethbridge calendar policies, including academic offences and disciplinary
procedures, will be enforced. Plagiarism of any form during tests, interactive trading and in
completing the projects will not be tolerated.
IMPORTANT NOTES:
1.
The textbook is widely used in similar university/college level courses across North
America and abroad. There is a “student online learning centre” on the publisher’s
website. There are numerous questions and problems at the end of each chapter for you to
practice. Solutions to these problems are posted on the course Moodle for your
convenience. CFA questions and problems are also listed in Appendix A at the end of this
text. I strongly recommend that you attempt some or all of the questions and problems at
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the end of each chapter first and then check their solutions from the manual. You can also
check with me if there are any questions pertaining to their solutions.
2. You must not use your cell phones and text message during class time. You can use
designated computers for activities related to this course during the class time (NO EMAIL Student using e-mail during class automatically receives 0 for attendance and
participation).
OPEN LAB HOURS
The Centre for Financial Market Research and Trading (CFMRT) is available for you to use for
projects and assignments whenever there are no classes in session. Please refer to the calendar
posted next to the door or online at: http://www.uleth.ca/management/CFMRTcalendar for
available times.
Examination:
6 in-class Tests
4 interactive trading cases
2 FTS real-time system projects
Class attendance and participation
Last class Exam
36%
20%
20%
10%
14%
The letter grades will be assigned according to the following scheme:
Grade Percentage
A+
A
A-
95-100
90-94
86-89
B+
B
B-
82-85
78-81
74-77
C+
C
C-
70-73
66-69
62-65
D+
D
F
58-61
50-57
00-49
COURSE SCHEDULE:
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Please check carefully the dates for project start and due dates. Also mark your calendar for
test dates, project due dates and the Rotman Interactive Trading cases tests.
It is expected that you read assigned chapters prior to attending class as well as browse and
study the recommended websites and the RIT and FTS manuals.
Part 1: The Investment Background
September 5 Administrative issues; ethics and suitability; Understanding Investments;
The Investment setting FTS Trading project #1 Risk and Return Discussion
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Assignments:
 Course Syllabus
 http://www.marketwatch.com/news/
 www.smartmoney.com - includes a glossary of financial terms
 http://walstreetcity.com
 http://finance.yahoo.com
 CNN/Money Magazine’s site: http://money.cnn.com
click on money 101 under Financial Tools and then click on Basics of Investing.
 For more on interest rates, exchange rates, Government of Canada securities see:
http://www.bankofcanada.ca
September 10 Introduce Rotman Interactive Trader and FTS Real Time System
Time Value of Money;
Investment Cycle and the Financial System
Last Day to start project #1 Risk and Return project starts (report due Sept 24)
September 12
Chapter 1, pp. 3-23.
Assignments:
 http://money.cnn.com/markets/bondcenter/
 http://money.cnn.com/data/commodities/
 http://www.finpipe.com/assback.htm
September 17 Ch. 2 and 2A
September 19 TEST# 1 (Chapters 1 and 2)
Assignments:
 Chapter 3, pp. 51-70.
 http://pages.cs.brandeis.edu/~magnus/stocks/node3.html
 http://pages.cs.brandeis.edu/~magnus/stocks/node6.html
 http://pages.cs.brandeis.edu/~magnus/stocks/node7.html
September 24 Securities market and the Economy; and websites
Discuss Rotman Interactive Trading Case - Microstructure –Price Impact (AT2)
Trading project: Risk and Return is due
Assignments:
 Chapter 4, pp. 71-101.
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http://www.tsx.com/
http://www.nyse.com/
http://www.cme.com/
http://www.cbot.com/
September 26 TEST#2 (Chapters 3 and 4)
Trial Rotman Interactive Trading Case - Microstructure (AT2) in class
Mathematics of Portfolio Diversification; Review of Statistics
Assignments:
 Review: mean, standard deviation; Normal distribution; Probability
October 1 Efficient Capital markets
Assignments:
 Chapter 5, pp. 105- 130.
 http://home.znet.com/schester/financial_advice/market_efficiency.html
 http://www.westga.edu/~bquest/2002/market.htm
October 3 Introduction to Portfolio Management:
Re-run RIT Case - Microstructure (AT2) for grade
Assignments:
 Chapter 6, pp. 131-158.
October 8 Holiday
October 10 Test #3 (on Chapter 6)
Asset Pricing Models CAPM an APT
Assignments:
 Chapter 7,
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https://www.canada.etrade.com
October 15 Trading project: How Securities are Traded starts (due Nov 14)
Company Analysis and Stock valuation:
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Assignments:
 Chapter 9, pp.231 - 270.
 http://www.marketresearch.com/VHP/Company/default.asp?categoryid=48
 http://www.lordabbett.com/usa/insights/article.jsp?OID=15863
 http://www.finpipe.com/equity/stockval.htm
October 17 Equity Portfolio Management Strategies
Assignments:
 Chapter15, pp. 455- 489.
 http://www.smartmoney.com/brokers/
October 22 Test #4 (Chapter 7, 9, 15)
Valuation of Stocks
October 24 Rotman Interactive Trading Case – EV2 DDM Valuation Asset Pricing
(Discuss)
Bond Portfolio Strategy
October 29 Bond Fundamentals
Assignments:
 Chapter 11, pp. 297- 317.
October 31 The Analysis and Valuation of Bonds
RIT Case – EV2 DDM Valuation Asset Pricing (for grade)
Assignments:
 Chapter 12, pp. 319- 350.
Part 6: Portfolio Management
November 5 RIT Case – FI2 Coupon Bonds (Discuss)
Interest rates term structure
November 7 Test #5 (on Chapters 11 and 12)
Bond Portfolio Management Strategies
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Assignments:
 Chapter 16, pp. 491- 603
November 12 Holiday
Part 5: Derivative Security Analysis
November 14 RIT Case – FI2 Coupon Bonds (for grade)
Trading project: How Securities are Traded is due
Evaluation of Portfolio Performance:
Assignments:
 Chapter 18, pp. 569- 603.
November 19 RIT Case - PM1 Diversification (discuss)
An Introduction to Derivative markets and securities
Assignments:
 Chapter 13, pp. 359-405.
November 21 Discussion of trading cases and projects
Derivative Valuation Theoretical Background
November 26 RIT Case - PM1 Diversification (for grade)
Applications of Derivatives for Portfolio Insurance and Hedging
Assignments:
 Prepare a discussion of current financial news related to use of derivatives
November 28 Test #6 (on Chapter 13, 16, 18)
December 3 Review
Guest Speaker
December 5 Discussion of trading cases and projects
Exam
Physical or Learning Disabilities:
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Please let me know if you have a physical condition or learning disability that may
impact your academic activities in this class.
You are allowed to prepare a formula sheet for the exams. “I had it wrong on the formula
sheet” is not an excuse. You can build up your formula sheet and use it for unexpected
fail/pass quizzes at the beginning of any class. You are expected to attempt the end of
chapter problems and seek instructor’s help in class or during office hours.
Academic honesty
You are expected to adhere to the highest professional and ethical standards. Please
become familiar with the University Policy on academic dishonesty. Those caught
cheating will be penalized to the maximum permitted by University policy, which
includes a final course grade of “F” and referral to the Dean for disciplinary action.
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