The List of Finance 3318 Topics
(Updated, February 7, 2016)
Ch 1: History
Definitions and concepts:
Total return, Percentage return, Dividend yield, Capital gains yield, Effective annual return, Holding
period percentage return, Risk premium, Risk-free rate, Risk-return tradeoff, Volatility, Variance,
Standard deviation, Normal distribution, Arithmetic average, Geometric average, Dollar-weighted
average return, Kurtosis, Fat-tail distribution, Third-moment,
Analytical and problem-solving exercises:
Compute variance and standard deviation using historical returns.
Compute arithmetic average and geometric average.
Find dividend yield, capital gains yield, holding period percentage return (i.e., total return), and
EAR.
Find the dollar-weighted average return.
Ch 2: Buying and Selling Securities
Definitions and concepts:
Full service broker, Discount broker, Securities Investor Protection Corporation, Cash account,
Margin account, Margin trading, Margin loan, Equity on margin trading, Initial margin, Maintenance
margin, Short sell, Short interest, Margin call, Hypothecation, Street name registration, Market
timing, Asset allocation, Security selection, Investor constraints (Resource, Horizon, Liquidity,
Taxes, Special circumstances), Company-sponsored retirement plan, ROTH IRA, Traditional IRAs,
Long/short position, Top-down approach, Risk tolerance, 401(k),
Analytical and problem-solving exercises:
Find the holding percentage return on margin trading and short sell strategy.
Find the current equity potion and current margin from margin trading as the price changes over
time.
Find the “triggering” price that calls for a margin call from margin trading and/or short sell trading.
Ch 3 & 15: Types of Securities
Definitions and concepts:
Interest-bearing securities, Money market instruments, Fixed-income securities, Common stocks,
Preferred stocks, Equities, Derivatives, Futures, Options, Debt securities, T-bills, CDs, Eurodollars,
Fed funds, Discount basis, T-bonds, Corporate bonds, Callable bonds, Convertible bonds, Municipal
bonds, Cumulative dividends, PE ratio, Calls, Puts, Financial futures, Commodity futures, Strike
price or exercise prices, In-the-money option, At-the-money option, Out-of-the-money option,
Current yield, Yield-to-maturity, Residual ownership, Stock quotes, Bond quotes, Option quotes,
Futures quotes, Intrinsic value, Time value, Speculative value, Writing options, Long and short
position on futures,
Analytical and problem-solving exercises:
Interpret information on security quotes such as stocks, bonds, options, and futures.
Compute net profit (or gain/loss) on calls and puts.
Compute gain/loss on futures trading.
Ch 5: Stock Markets and Indexes
Definitions and concepts:
Private equity, Venture capital, IPOs, SEOs, Underwriting (Underwriter syndicates, IPO prospectus,
Road show), Broker market versus dealer market, NYSE, Over-the-count market, NASDAQ, Bid-ask
The List of Finance 3318 Topics
(Updated, February 7, 2016)
price, Limit order, Market order, Stop order, Stop-limit order, DJIA, S&P 500 Index, price-weighted
index versus Value-weighted index, Extended-hours trading, Pink sheet market, OTCBB market,
Analytical and problem-solving exercises:
Find the index value of price-weighted and value-weighted index.
Ch 19: Macroeconomic and Industry Analysis
Definitions and concepts:
Top-down approach, Macroeconomic analysis, Industry analysis, Company analysis or security
analysis (Fundamental analysis, Technical analysis), Market timing, Asset allocation, Security
selection, Operating leverage, Industrial production, Financial Leverage, Monetary policy (Open
market operation, Discount rate, Reserve requirement), Fiscal policy, Leading indicator, Lagging
indicator, Coincident indicator, Business cycle, Peak, Trough, Sector rotation
Reading sources:
“Know your sectors” by Fidelity.com at https://www.fidelity.com/learning-center/sectors/knowyour-sectors-and-industries
“How to invest in sectors using the business cycle” Fidelity.com at
https://www.fidelity.com/viewpoints/how-to-use-business-cycle
Ch 17: Financial Statement Analysis
Definitions and concepts:
Fundamental analysis, Technical analysis, Balance sheet, Income statement, Cash flow statement,
Liquidity ratio (Current ratio, Net working capital), Leverage ratio (Debt ratio, Debt-to-equity ratio,
Times interest earned), Activity ratio (Inventory turnover, Accounts receivable turnover, Total
asset turnover, Capital intensity), Profitability ratios (Net profit margin, Return on asset, Return on
equity), Price ratios (Price-earnings ratio, PEG ratio, Price-book ratio, Price-cash flow ratio),
Financial statement forecasting, Value Line research report, Percentage of sale approach, Pro forma
financial statements
Analytical and problem-solving exercises:
Compute liquidity ratio, leverage ratio, profitability ratios, price ratios, and other ratios.
Conduct ratio analysis by examining the historical trend and peer performance.
Reading sources:
“The balance sheet” by Fidelity.com at https://www.fidelity.com/learning-center/tradinginvesting/fundamental-analysis/annual-and-quarterly-financial-reports/balance-sheet
“The income statement” by Fidelity.com at https://www.fidelity.com/learning-center/tradinginvesting/fundamental-analysis/annual-and-quarterly-financial-reports/income-statement
“The statement of cash flows” by Fidelity.com at https://www.fidelity.com/learning-center/tradinginvesting/fundamental-analysis/statement-of-cash-flows
Ch 6: Common Stock Analysis
Definitions and concepts:
Fundamental analysis, Dividend discount model, Two-stage growth model, Growing perpetuity,
Sustainable growth rate, Arithmetic average versus Geometric average to find the growth rate,
The List of Finance 3318 Topics
(Updated, February 7, 2016)
Estimating the required rate of return, Residual income model, Free cash flow analysis, Priceearnings ratio, Price-cash flow ratio, Price-sales ratio, Value Line research report
Analytical and problem-solving exercises:
Find the intrinsic value of a stock, given dividend streams with the expected growth rate.
- One growth rate case
- Two growth rates case (Supernormal growth rate or two-stage growth model)
Find the intrinsic value of a stock, using the Residual Income Model.
Find the intrinsic value of a stock, using the Free Cash Flow approach.
Find the intrinsic value of a stock, given P/E ratio, P/S ratio, or P/CF ratio.
Find the growth rate.
Find the required rate of return.
Ch 7: EMH
Definitions and concepts:
Random walk process, Active versus Passive investing, Rapid price adjustment, Arbitrageurs,
Risk-adjusted return, Historical information, Public information, Private information,
Dartboard portfolio, Efficient market hypothesis (Strong form, Semi-strong form, and Weak
form EMH), insider trading, event study, Overreaction/underreaction, Informed traders,
Anomalies (including January effect, Monday effect, Size effect, P/E ration effect, Book-tomarket ration effect, etc), survivorship bias in money manager performances, Tax-loss selling,
Technical analysis, Index funds, Bubbles and crashes, Filter rules,
Ch 4: Mutual Funds and ETFs
Definitions and concepts:
Mutual fund, Financial intermediary, Open-end fund, Closed-end fund, NAV,
Advantages/Disadvantages of mutual funds, Pass-through tax, Prospectus, Loads, 12b-1 fee,
Expense ratio, Management fee, Trading cost, Load fund vs. No-load fund, Current income vs.
Capital gain, Money market mutual funds, Types of different funds, Index fund, ETFs, Style (Large vs.
Small, Value vs. Growth), Morningstar rating, Closed fund, Hedge funds, Actively-managed fund vs.
Passively-managed fund,
Analytical and problem-solving exercises:
Compute the NAV.
Compute the front-end percentage.
Ch 8: Behavioral Finance, Technical Analysis
Definitions and concepts:
Behavioral finance, Cognitive psychology, Prospect theory, Mental accounting, Anchoring, Frame
dependence, Loss aversion, House money, Overconfidence, Clustering illusion, The Hot-Hand
Fallacy, The Gambler’s Fallacy, Mental accounting, Endowment effect, Money illusion, Law of small
numbers, Snake-bite effect, Regret aversion, Recency bias, Availability bias, Self-attribution bias,
Limit to arbitrage, Fundamental analysis versus Technical analysis, Moving average, Put/call ratio,
Bollinger bands,
Ch 11 & 12: Portfolio theory
Definitions and concepts:
Correlation/Covariance, Diversification, Portfolio risk and return, The feasible (or attainable)
portfolio, The Markowitz Efficient Frontier, Optimal portfolio, Minimum variance portfolio,
The List of Finance 3318 Topics
(Updated, February 7, 2016)
Systematic risk, Unsystematic risk, Diversifiable risk, Non-diversifiable risk, Market risk, Assetspecific risk, Company-specific risk, Idiosyncratic risk, SML, Stock beta, Regression, Portfolio beta,
The Reward-to-Risk ratio, Beta versus standard deviation in measuring risk, CAPM, Risk-free asset,
Regression,
Analytical and problem-solving exercises:
Find the portfolio’s expected return and risk.
Find the CAPM return.
Calculate the reward-to-risk ratio.
Find the portfolio beta.
Ch 9 & 10: Bond Valuations and Interest Rates
Definitions and concepts:
Types of bonds, Bond pricing, Premium/discount, Current yield, Capital gains yield, YTM, YTC,
Callable bonds, Malkiels Theorem, Duration analysis, Interest rates, Money market rates (Prime
rate, Federal fund rate, Discount rate, LIBOR), EAR, APR, Inflation, The Fisher Effect, Yield curve,
Terms structures of interest rates, Forward rates,
Analytical and problem-solving exercises:
Find Macaulay’s Duration, Modified Duration.
Find new bond price using duration analysis, given change in interest rates.
Find current yield, capital gains yield, price of a bond, YTM
Find the EAR and APR.
Find the real rate or nominal rates using the Fisher Effect.
Find the forward rates.