My Stock-Trak account number is: ________________________. FINA 469 – Investment Analysis and Portfolio Management Spring 2009 Instructor: Dr. Donghang Zhang Location and Time: BA 450 TTH 11:00 – 12:15pm (Sect. 002) BA 451 TTH 02:00 – 03:15pm (Sect. 003) BA 750 TTH 03:30 – 04:45pm (Sect. 001) Note: due to the seat limits, you are required to attend the section for which you are registered. Office Hours: TTH 12:15 – 1:45pm and by appointment You are also welcome to stop by without an appointment if you have a question for me and you happen to be in the building – I will be in my office with high probability during regular work hours on weekdays. The only difference between with and without appointments is that I occasionally can’t talk with you if you don’t have an appointment. But I will give you higher priority over other businesses whenever possible. Office: BA 478 Phone: 777 – 0242 E-mail: zhangATmoore.sc.edu Class Website: Blackboard – log-in required. Note that you will see two courses for FINA469: one is the section (001, 002, or 003) that you registered for, and the other, Section 000, is the combined section. All class postings, such as notes, homework assignments, e-mail announcements, etc. will be available through Section 000. (If you don’t see FINA469-000-SPRING-2009 when you log into Blackboard, please contact the Blackboard support. If this can’t be resolved, please inform your instructor.) Course Overview This course provides an in-depth discussion of fundamental principals related to investment analysis and portfolio management. Topics include investment environment, equity valuation, fixed-income securities, portfolio theory, and option valuation. Objectives of this class include understanding ⋅ how security markets function, ⋅ the trade-off of risk and return, and ⋅ how to develop investment strategies. Students will be exposed to some real-world mechanics of investing. With the general trend towards defined contribution pension plans in the U.S., most of us will have to choose from an array of investments including stocks, bonds, money market funds and mutual funds. As we move through the material in this course, it is a good idea to keep in mind: “How what I do in class may help my real-world investment decisions?’ 1 It is important to be skeptical about investment advice you read in the popular press. There are simply too many people who live on commissions off your investment dollars. One ancillary goal of this class is to help you to understand and critically evaluate investment advice from brokers and the financial press. Course Prerequisites Students are officially required to have taken FINA 363. You should know some basic mathematics and statistics such as how to do differentiation, and how to calculate mean, variance, and covariance. You should also know how to use Excel to do some spreadsheet work. Some students may find the material in this class challenging in terms of quantitative-analytical skills and work load. If you have trouble, please do not hesitate to seek my help. Required Textbook and Materials Required Text: Essentials of Investment, Seventh Edition, by Bodie, Kane and Marcus Calculator: You will need a calculator, preferably a financial one, to do homework and to take quizzes and exams. (I compiled some simple instructions for Texas Instrument BA II Plus financial calculator while teaching a different course, and I will post it on the class website. But you don’t have to use this type of calculators. As a matter of fact, a scientific calculator will work for our exams, although a financial one will provide some convenience.) The Wall Street Journal: You are strongly encouraged to read the WSJ. Please pay more attention to Section C (Money and Investing), and focus on articles relating to stocks and investment advice in general. Grading I understand the importance of grades to you. I will do my best to provide convenience and help, if you have questions regarding the grading policy and/or your grades. The midterm exams and the final grades will be curved, if I see the need to do so. The curve will depend on the performance of the class. I will use one curve for all sections, unless we have reasons that suggest otherwise. Other grading components will not be curved. The grading components will be as follows: Grading Component Regular Homework (3 of them) Quizzes (3-5 quizzes, and one can be dropped) Computer Project Midterm #1 Midterm #2 Final Exam Investment Game Class Performance 2 Weight 12% 10% 7% 20% 20% 25% 5% 1% Homework: The homework not only prepares you for the exams, but also helps you to better understand the most important concepts. It’s necessary to do the homework on time to keep up with the class. We’ll have three homework assignments, and they will be equally-weighted to give you your homework grade. The homework will consist of multiple choice questions and be conducted via Blackboard system. Late homework will not be accepted unless you have a really (almost impossible) good excuse (this policy applies to all other assignments). Group discussions are allowed and encouraged. However, each student is individually responsible for all questions in each homework. Quizzes: Three to five quizzes are designed to keep you up with the class. Each quiz usually lasts 10 to 15 minutes at the beginning of class. You can drop one of the quiz scores, and the rest will count toward your total quiz grade. Make-up quizzes can only be scheduled if you have a really good excuse and solid proof. Questions for quizzes are from class examples and end-of-chapter problems with very little modifications. The time and coverage of each quiz will be announced in advance. Computer Project: I will provide some historical data on individual stocks. You will need to calculate holding period returns adjusting for dividends and stock splits, to trace out the efficient frontier of a risky portfolio, and to estimate the beta and factor sensitivities. Group work is allowed, and the maximum group size is four. Each group only needs to turn in one report. Please indicate all group members’ names, if you work as a group. You can choose partners for this project from the other section, as long as it is clearly indicated on the report. Exams: We will have two mid-term exams and one final exam. The midterms will not be cumulative (except for core concepts). The final exam will be cumulative and cover all the materials. The two mid-term exams will be scheduled in the evenings (please refer to the class schedule on Blackboard for the time and dates) for 75 minutes, but the instructor will stay for another 45 minutes if any students want to use some extra time. The classes on the exam day will be cancelled, and I will hold additional office hours during that time. If you have time conflicts for either mid-term due to other classes or university responsibilities, you need to inform the instructor at the beginning of the semester. If you have other classes or other university responsibilities during the scheduled exam time, you can use any of the three class periods on the exam day to take the exam during the day, and you can still have additional 45 minutes if you want to. If you want the benefits of the additional time but don’t have time due to class schedules, you need to discuss this with the instructor asap. For those who have a really good excuse (and with proof) to miss one of the mid-term exams on the scheduled exam dates, two options are available: schedule a make-up exam or the grading component of the missed exam will accrue to the final. However, you can not just choose to miss one mid-term exam. If you plan to be out of town on any of the exam dates, please let me know as soon as possible. Investment Game We are going to play a stock investment game during the semester. Each student will invest $1,000,000 of "play" money through STOCK-TRAK. Except for a few restrictions, STOCK-TRAK works like your online broker. We will start the game on January 19, 2009. 3 The ending date of the investment game is April 27, 2009 (you can continue to use your account for a couple of more weeks, but any trading beyond April 27, 2009 will not be considered for any class-related evaluations). You can only gain access to trading if you pay to open an account online at StockTrak’s website. You need to obtain the account number from the instructor (otherwise you might trade with a guy from the Antarctica). The game includes two phases. The first phase is the speculation phase. For the period from January 19, 2009 to April 17, 2008, you can freely invest the $1,000,000 cash in your account with one exception. The exception is that the instructor will periodically ask you to trade certain types of securities as we move through the lectures and you have to follow the instructions. The goal of this phase is to help you to understand different securities and the risk-return relation. The second phase of the game is the asset allocation phase. For this part, you are asked to build a retirement portfolio for a hypothetical client. Here is the background information for the client: the client is a professional individual contractor. His/her profession is technology consulting, with most of his/her work from Microsoft. This person is in his/her late 20’s, single and has no children. The $1,000,000 (or whatever left after the first phase of the game) you will manage for him/her is all his/her savings. For simplification, let’s assume that this person does not have a pension, 401(k) plan or any other retirement accounts. So his/her portfolio will be used for his/her retirement. Assume for now that you are hired to manage his/her portfolio. You need to build a portfolio which you think will suit his/her needs by using StockTrak. For both phases, students will be permitted to experiment different investment strategies/ideas/tips, but I do encourage you to find related chapters in our textbook and read them before you invest your “money”. Students need to follow all the restrictions set up by StockTrak, your online broker. For example, please do notice that you need to pay commissions to your broker (in addition to the stock purchase) each time when you trade. And your account has to satisfy the margin requirements. You are encouraged to explore StockTrak’s website (http://www.stocktrak.com/) to learn all the rules and help features. You will be asked to turn in periodic updates throughout the semester. For each update, I will give you instructions. For the speculation part, you will be asked to trade certain securities such as stocks, bonds, mutual funds and options. These security purchase instructions may or may not suit your goal, but it is your job to make sure you do not deviate too much from your course. For some updates I will also ask you to think about some asset allocation issues when it is near the end of the semester. However, there will be no required trades for such required updates. At the end of the semester, you need to build a retirement portfolio for your hypothetical client and turn in an update presenting the portfolio. Instructions will be given for the main requirement for this (final) update near the end of the semester. Your grades for this investment game are based on the periodic updates, including the final update for the asset allocations for the second phase of the game. For the grade of each update, I will look for whether you turn in the update on time and how you satisfy the requirements of the update. For the final update, which is likely to be worth more points 4 than other updates, the quality of your portfolio will also be examined (in addition to the usual requirements). Your portfolio return until April 17 for the speculation part will NOT affect your grades for the investment game. It would be philosophically wrong if we do not reward good performance, but for the purpose of this class, too much emphasis on the returns over a 12week period is also not appropriate. As we all know, your attention and efforts will improve your return (money managers do work for their pay checks), and at the same time, a large part of your return for the speculation could be because of luck. To strike a balance, I will not use your return for the 5% investment game grade, BUT you can receive an “upgrade” of your final letter grade conditioning on (1) you portfolio return is ranked among the top 20% of the class (all sections), and (2) after all regular grades are counted, your point average is less than 0.5 away from the cutoff for the next level. You may not need this booster at all, but you will never know. So as an insurance policy, and for your personal bragging rights, go make some “money”! Class Performance: We can not succeed without your input. I expect that all of you prepare for each class in advance, come to class on time, take notes, ask questions, and participate in class discussions (in class and online). I expect that you spend time outside of class and study the materials. I expect that you have a positive attitude – you should not simply give up when you find the materials challenging, and you should not only study a few days before the exams. Note that I may periodically take attendance, and I reserve the right to take into account your class attendance when I evaluate your class performance. After all other grading components are counted, and if your point average is within 1 point away from the cutoff for a better letter grade, I will decide whether you receive the 1% or not. The 1% class performance grade is NOT need-based. It will be solely based on my judgment of how you satisfy my expectations. Class Website The class website is a useful place where you can find the most recent announcements, and download files such as homework assignments, solutions, class notes, old homework assignments and old exams. Please make sure you can access and download files from the website. Class Notes: Class notes will be made available on the class website. These notes help you not to get lost in class. However, in class notes I intentionally omit some materials that I will discuss in class and may show up in exams and quizzes. Discussion Forums: as an experiment for this semester, I will periodically open discussion forums based on some topics in the real world and topics we cover in class. I encourage you to post comments in those forums. Since this is uncharted area, I will provide more guidance as we move through the semester, and your feedbacks are welcome. Class E-Mail Each student is required to have the e-mail account that is associated with the Blackboard system up to date. And you should check that e-mail account regularly. I often send e- 5 mail messages to the class using the Blackboard system. Any class requirements sent in the e-mail messages through the Blackboard are considered delivered. At the beginning of the semester, I will send a test message. Please make sure that your e-mail account is working! Class Format Class topics will generally follow the textbook, though we may take some significant detours where appropriate. I will post a tentative class schedule on the class website (it is NOT attached to the syllabus so that we can have some flexibility). The schedule will give you guidance on the topics of different lectures and the expected dates for each lecture to be covered, but keep in mind that changes are expected for the longer term. It is important that you periodically check the schedule and read the appropriate sections of the textbook before each class. You can find the schedules for the mid-term and final exams in the online class schedule. The final exam schedule is set by the university. We will not modify these exam schedules unless we run into some very usual circumstances. Providing lecture notes should not be construed as an invitation to ignore the book or skip class—it’s just that I’d like your energies focused on understanding the most important concepts and on listening to and digesting the lecture, not busily writing down what was said a few minutes ago. I encourage you to write down additional notes to help you decipher what my notes are supposed to mean. University of South Carolina Honor Code All forms of academic dishonesty are prohibited. These include cheating, plagiarism, lying in academic matters, fraud, bribery, unauthorized access to tests and examinations. I expect that all of you follow the highest possible interpretations of the honor code. Here is a copy of the Honor Code: It is the responsibility of every student at the University of South Carolina Columbia to adhere steadfastly to truthfulness and to avoid dishonesty, fraud, or deceit of any type in connection with any academic program. Any student who violates this Honor Code or who knowingly assists another to violate this Honor Code shall be subject to discipline. Prediction of the Stock Market Please write down your expert predictions of the future market performance: • On Jan. 6, 2009 at the market close (when this syllabus is finalized), o the Dow Jones Industrial Average (DJIA) was 8,769.70; o the S&P 500 was 906.65 . • On May 1, 2009, o the DJIA will be: ; o the S&P 500 will be . • December 31, 2009, o the DJIA index will be: ; o the S&P 500 will be . 6