Syllabus, FINA 3080 AB, Fall 2023, Prof. Chao YING DEPARTMENT OF FINANCE THE CHINESE UNIVERSITY OF HONG KONG FINA 3080 AB: Investment Analysis and Portfolio Management Fall 2023 Time and Location: Session A: Tuesday Session B: Tuesday 2:30 - 5:15pm, Mong Man Wai Bldg LT1 9:30 - 12:15pm, Cheng Yu Tung Bldg 209B Instructor: Prof. Chao Ying; Office: 1232, Cheng Yu Tung Building (CYT) Email: chaoying@cuhk.edu.hk Office Hours: By appointment TA: Ms. Lillian Li; Finance PhD Student (CUHK) Office: 735, Cheng Yu Tung Building (CYT) Email: shutingli@link.cuhk.edu.hk Office Hours: Thursday 2:00 - 4:00pm If office hours conflict with your other courses, please send me your name, SID, and your class schedule to me before the end of the 3rd week. After I double check it in the system, we can arrange special office hours for you if needed. If you send your schedule after the 3rd week or have other conflicts, we can not arrange any additional office hours for you. In addition, this class is in-person only. We can not provide any recordings or Zoom meetings. You take all the responsibility by yourself if you can not attend the class or exams in person. Pre-request (MUST READ) This class is math-heavy and very quantitative. In addition to the pre-request in the system, you should also have taken other basic math and statistics courses. For example, to understand my class, you must already know the following concepts very well: (1). how to calculate variance, covariance, and correlation and their properties; (2). the present value and future value of cash flows, which include annuity and perpetuity (3). the first order derivatives and find the minimum or maximum of a function, (4). the properties of exponential functions and normal distributions. (5). CAPM In addition, you must have a financial calculator that is approved by CUHK and know how to use it. Please make sure you know these concepts before taking this class. I will assume you know these concepts very well during the whole semester. During the first day of our lectures, I will give a quiz to test these basic concepts. Though it is not graded, please show up on time since I do not give any extra time. Please refer to the 3rd 1 Syllabus, FINA 3080 AB, Fall 2023, Prof. Chao YING page if you can not attend it on time. You take all the responsibility by yourself if you are late or miss the quiz without telling me in advance. Course Description Finance 3080, designed as a course in investment analysis, is intended for students who want to become investment professionals, knowledgeable individual investors, or both. The course covers the primary financial securities: bonds and stocks, and methods for combining these underlying assets into a portfolio. Generally, three parts would be discussed in this course. First, the overall layout of financial markets and the available financial instruments and their trading in real markets would be introduced. Then we will study fixed income securities (bonds). Because bonds pay a fixed amount of interest on a set schedule to investors, the valuation and pricing of bonds is primarily an application of the time value of money concept. This concept should be familiar to students satisfying the central prerequisite to this course. The midterm (7 pm – 8:30 pm, October 19 at the LSK LT7) will cover both the general overview material and the bond material, with a heavy emphasis on bond pricing and bond risk measures. Following our work on fixed income securities, we will study equity securities (stocks). Since stocks represent a residual ownership stake in a company, the cash flows to stockholders are generally more volatile than the cash flows to bondholders. The course will cover various valuation methods for stocks, focusing on dividend growth models. Next, we will study portfolio theory, which tells us how to measure investment risk and how risk can be mitigated by combining financial assets into a portfolio. The final exam will be cumulative, testing students’ knowledge on all of the material covered in the course. Course Requirements and Grading Grades will be based on the student’s performance on one midterm, one final exam, three problem sets, and class participation. Exams will be comprised of multiple choices and short answer questions. All tests are closed book and I will provide the formula sheet. Your overall score in the course will be determined mechanically as the weighted average of the four component scores. The weights on each component of the overall course grade are as follows: Quiz First day of lectures 0% Midterm October 19 40% Final Exam Dates To Be Announced 50% Two Problem sets Due Dates To Be Announced 10% Make-up exams are generally not possible. There will certainly not be make-up versions of the midterm. If you have to miss the midterm for a pre-approved reason, then the percentage of the midterm will be added to your final. In other words, if you miss the midterm for a pre- 2 Syllabus, FINA 3080 AB, Fall 2023, Prof. Chao YING approved reason, your final exam will count 90% (50% + 40%). Please show up on time since I do not give any extra time. What is a valid pre-approved reason for missing a test? Any conflict must be documented in writing (or you forward the related emails) and submitted to me for my approval. The request must include the student’s name and the conflict. Check your schedules now! If you fail to show up for either test without telling me beforehand, then you must present a doctor’s note stating the details of your illness and you were too sick to take the test. The doctor’s note without details will not be approved. Other personal reasons may be considered valid at my discretion. If you miss either test without a valid reason, then you will receive a zero on the missed test. I strictly follow the rules so please attend the exams on time. If your email does not contain the required attachment, I will not reply and you get a zero if you do not show up during the exam. I do not accept any documents after the exams. You take all the responsibility by yourself if you do not send me the related documents before the exams. Homework The purpose of two problem sets is to help you better understand the materials lectured and prepare for exams. The homework questions are usually more difficult than the exam questions and you should start working on them as early as possible. You can work on your own or work as group (up to three people). All group members will receive the same score. Although students may help each other with the problem sets, each individual should make sure that they can solve all problem set questions. The solutions will ONLY be available during office hours. We do not accept any late submissions and/or any revisions. There is no credit for late problem sets. I will post the problem sets on the Blackboard website. Course Materials The required textbook for the course is: Essentials of Investments, Bodie, Kane, and Marcus, 12th Global edition, McGraw-Hill. Other suggested book: Investments, Bodie, Kane, and Marcus, recent edition, McGraw-Hill. All required readings should be completed prior to the class meeting for which they are assigned. The course website, available through Blackboard, will serve as the official mechanism for distributing course materials. http://blackboard.cuhk.edu.hk/ 3 Syllabus, FINA 3080 AB, Fall 2023, Prof. Chao YING Finally, students will need a calculator for exams. Calculators approved by the Registration and Examinations Section of the University are allowed. Programmable calculators must be cleared before each test, and there is no sharing of calculators during the test. General and Miscellaneous Policies ● During lectures, you should always be prepared to answer questions. I will address questions to individuals and to the class as a whole at my discretion. These questions will assume that you have completed the assigned readings prior to the class session. ● Although attendance will not be taken, you are responsible for everything covered or assigned in class. The lectures will sometimes depart significantly from the reading material assigned. ● The use of laptop computers is permitted during lectures solely for the purposes of taking notes and obtaining course materials. E-mail and the Internet may not be accessed during lectures except to visit the course websites listed in the syllabus. ● Academic dishonesty will not be tolerated. Your responsibilities with regard to scholastic dishonesty are described in detail in the Policy Statement on Scholastic Dishonesty. In particular, it is expected that the work on your examinations will be entirely your own. Failure to do so may result in failure on the examination or course. ● Examinations will not be returned. To appeal grading on final exam, a written explanation with details (can be sent by email) is required. Any appeal should be sent within two weeks after the grade becomes available to you. Study Guide My teaching will be mainly based on my lecture notes, which will be posted on the Blackboard before each class. You need to preview it before coming to class. In each class, I will explain the concepts and solve some example problems. You are responsible for everything I teach in class. Moreover, you need to read the assigned readings carefully. The textbook is a very useful resource, and I suggest you read every chapter at least twice. I also expect your active participation in class discussions. If you want to do well, come prepared, speak up when you have questions, and apply your best efforts. I suggest that you read each chapter once before it is discussed in class and then read it again after the topic is covered in class. Reading the material beforehand will greatly assist in having meaningful class discussions. If you are having trouble with a concept or problem, go to office hours as soon as possible. Grade Descriptors A AB Outstanding performance on all learning outcomes. Generally outstanding performance on all (or almost all) learning outcomes. Substantial performance on all learning outcomes, OR high performance on some learning outcomes which compensates for less satisfactory performance on others, 4 Syllabus, FINA 3080 AB, Fall 2023, Prof. Chao YING C D F resulting in overall substantial performance. Satisfactory performance on the majority of learning outcomes, possibly with a few weaknesses. Barely satisfactory performance on a number of learning outcomes. Unsatisfactory performance on a number of learning outcomes, OR failure to meet specified assessment requirements. Academic honesty The Chinese University of Hong Kong places very high importance on honesty in academic work submitted by students, and adopts a policy of zero tolerance on cheating and plagiarism. Any related offence will lead to disciplinary action including termination of studies at the University. Attention is drawn to University policy and regulations on honesty in academic work, and to the disciplinary guidelines and procedures applicable to breaches of such policy and regulations. Details can be found at http://www.cuhk.edu.hk/policy/academichonesty/. Late drop In view of the increasing numbers of late-drop applications for undergraduate courses these two years, the Department, in consultation of the Department Committee on UG Studies, has discussed the issue with the Department ExCo. The Department ExCo, at the meeting held on July 13, 2023, has approved the following guidelines about the late-drop policy for undergraduate courses: • As a general principle, late drop will normally not be considered except for unforeseen reasons. • Proof of strong evidence is needed for late drop, especially after the middle of the academic term (Nov/Dec for the Fall term and March/Apr for the Spring term). For example, a medical certificate will be needed for health-related reasons. • Late drop is unlikely to be approved in the last month of the academic term, except for extenuating circumstances. • When submitting late drop applications, students should indicate whether their late drop applications involve other courses as well. Late drop for multiple courses merits stronger considerations for approval. • Please attend the exams and hand in the homework before your late drop is approved by the school. Otherwise, you will get zero point. 5 Syllabus, FINA 3080 AB, Fall 2023, Prof. Chao YING Updated Schedule A sample class schedule is shown below. This schedule may be modified somewhat as the semester progresses as some topics take more or less time than anticipated. The availability of new material and practice questions may be announced in class, but check Blackboard for new material. The student is responsible for checking Blackboard for new materials. MTG Week of 1 5-Sep INTRODUCTION and OVERVIEW - Schedule, Grading, Problem Sets, Class Policies 2 12-Sep OVERVIEW - Financial Instruments 3 4 19-Sep 26-Sep TOPIC CHAPTER 1.1-6 2.1-4, 10.1 MECHANICS: How Securities Are Traded 3.1-7 BONDS - Yield and Pricing Calculations 10.2-4 BONDS - Yield Curve and Default Risk 10.5-6 BONDS - Interest Rate Risk: Duration 11.1 BONDS - Interest Rate Risk: Immunization 11.2 5 3-Oct STOCKS - Definitions and Valuation Models 13.1-2 6 10-Oct STOCKS - Valuation Models (DDM) 13.3-4 REVIEW for Midterm 7 19-Oct (Thu) 8 24-Oct Midterm: BONDS + Overview material Time and Location: 7 pm – 8:30 pm at the LSK LT7 Go through the midterm RISK AND RETURN - Expected Return and Variance; E(Rp), Asset Allocation 9 10 11 31-Oct 7-Nov 14-Nov DIVERSIFICATION - Portfolio E(R) and Variance; Allocations Under Uncertainty 6.1-2 DIVERSFICATION – Optimal Risky Portfolios 6.3-4 CAPM - Theory and Evidence 7.1-3 APT - Theory and Evidence 7.4-5 EMH - Efficient Markets Hypothesis: 8.1-3 BEHAVORIAL FINANCE – Biases and Limits-to-arbitrage 12 21-Nov 5.1-2,5 9.1 OPTIONS – Instruments, Definitions, and Payoffs 20.1-2 OPTIONS – Valuation 21.2-3 COURSE WRAP-UP, Review for Final Exam 13 28-Nov FINAL EXAM: Date, Time, and Room Will Be Announced 6 All Above