Department of Finance
University of Illinois at Urbana-Champaign
Finance 411: Investment and Portfolio Management
Fall 2013
Sections: Monday and Wednesday, 12:30 pm and 2:00 pm
Course Syllabus
Instructor: Prachi Deuskar
Email: pdeuskar@illinois.edu
Office: 461 Wohlers Hall
Phone: 217-244-0604
Office Hours:
Course site:
Monday and Thursday
3:30 pm to 4:30 pm
and by appointment
compass2g.illinois.edu
Course Description
In this course, we will discuss fundamental principles of risk-return trade-off, portfolio
optimization and security pricing. Through lectures, in-class discussions and various
assignments, you will learn to choose a portfolio of risky and riskfree assets, to apply
various models of security returns, and to analyze investment performance. You will also
understand a number of stylized facts about the financial markets.
Prerequisites
All students enrolled in this class should have taken Finance 300: Financial Markets or
equivalent. This prerequisite will be enforced. Students are also expected to possess
working knowledge of Excel.
Course Requirements and Grades
The course requirements include class participation, homework assignments, two
midterms and a final. I will use a standard grading scale, including plus (+) and minus (). Overall score for the course will be based on following weights:
Class Participation
15%
150 points
Problem Sets
12.5%
125 points
Investment Simulation Project
20%
200 points
Mystery Security Project
7.5%
75 points
Exams
45%
450 points
Class participation involves answering questions using I-clicker. I-clickers are available
at the Illini Union book store. Every class there will be one question specifically for
points. You get 10 points for answering it correctly and 7 points if you attempt to answer
it but get it wrong. You get full grade for class participation if you get 150 points or
more. Please get an I-clicker and register it at http://www.iclicker.com/registration/. Use
your net id (not UIN) for registration.
Finance 411: Investment and Portfolio Management
Course Syllabus
Assignments include problem sets (PS) and investment simulation (IS) and mystery
security (MS) projects. They are due via Compass on the due date. Problem sets are
individual assignments. IS and MS projects are group assignments to be handed in by
groups of 3/4 students enrolled in the same section. There will be three in-class exams.
Dates for the homework assignments and exams are specified in the course schedule.
Textbook (Optional)
Zvi Bodie, Alex Kane, and Alan J. Markus, Investments, 9th ed., 2009, Irwin McGrawHill (BKM).
This book is very thorough and clear. It is useful not only as a textbook for this course
but also as a valuable reference throughout a career in financial services. However, even
though readings from the book may help you in understanding the material, they are not
required for this course. If you decide to buy the book, you can buy the 9th edition in
print, an earlier edition or an ebook specifically created for this course that has only the
relevant chapters. The ebook (ISBN: 9781121283732) is available at
www.mcgrawhillcreate.com/shop. Detailed instructions on how to buy the ebook are
posted on Compass.
Readings
Most of the readings, as mentioned in the course schedule, are from the textbook (BKM).
These are supplementary but not required. In addition, I may hand out some relevant
materials from time to time.
Class Conduct
Please try to come to class on time. If for some reason, you are late, please enter the class
and take a seat without disturbing the class. Also, please do not forget to turn off your
cell phones and other noisy devices.
Academic Integrity
For group work, you may not share any related material or information with individuals
who are not members of your group. For individual work, you may not share any
material or information with anybody else before, during or after the assignment or exam.
Cheating, plagiarism or other violation of academic integrity will not be tolerated. Please
refer to the student code on http://www.admin.uiuc.edu/policy/code/ for details about
academic integrity.
Feedback
I would love to get your comments or suggestions about the contents of the course or the
manner in which it is taught. Please feel free to email me or talk to me whenever you
think of something.
Fall 2013
2
Prachi Deuskar
Finance 411: Investment and Portfolio Management
Course Syllabus
Topics and Readings (Subject to change)
Readings - BKM
th
7 Edition
8th Edition
9th Edition
5.3, 5.4, 5.5,
5.3, 5.4, 5.5,
5.3, 5.4, 5.5,
5.8, 7.1,
5.8, 7.1,
5.8, 7.1,
Chapter 7 –
Chapter 7 –
Chapter 7 –
pages 229-230
pages 216-217
pages 217-219
6.1
6.1
6.1
Markowitz Optimization: The Riskfree Asset
6.2-6.5, 7.2-
6.2-6.5, 7.2-
6.2-6.5, 7.2-
and Multi-asset Portfolio Choice
7.4, 7.A
7.4, 7.A
7.4, 7.A
26.2
28.2
28.2
Topic
1
1.1
Background
Characterizing Returns
1.2
Expected Utility and Risk Aversion
2
Portfolio Choice
2.1
2.2
Portfolio Choice with Background Risk,
Horizon, and Other Factors
3
Models with One Source of Risk
3.1
Capital Asset Pricing Model
6.6, 9.1, 9.5
6.6, 9.1, 9.5
6.6, 9.1, 9.5
3.2
Sharpe's Single Index Model
8.1, 8.2
8.1, 8.2
8.1, 8.2
3.3
Estimation
8.3, 8.5, 9.2
8.3, 8.5, 9.2
8.3, 8.5, 9.2
3.4
Is the Model Valid?
13.1
13.1
13.1
4
Models with Multiple Sources of Risk
4.1
APT: Theory
10.1, 10.5
10.1, 10.5
10.1, 10.5
4.2
APT: Estimation
13.2, 13.3
13.2, 13.3
13.2, 13.3
5
Anomalies
5.1
No Arbitrage, the Efficient Markets Hypothesis
10 - pages 336-
10 - page 325,
10 - page 324,
337, 11.1-11.3
11.1-11.3
11.1-11.3
5.2
Anomalies
11.4
11.4
11.4
6
Behavioral Finance
12
12
12
7
Investment Management
7.1
Investment Management
24, 11.5
24, 11.5
24, 11.5
7.2
Active vs. Passive Management
27
27
27
7.3
Liquidity
3.5, 9.6
3.5, 9.6
3.5, 9.6
7.4
International Diversification
25
25
25
7.5
Risk Management
23.2
23.2
23.2
Fall 2013
3
Prachi Deuskar