UNIVERSITY OF MASSACHUSSETS DARTMOUTH
College of Business
Department of Accounting and Finance
Fall 2009
COURSE:
Investment Analysis, FIN 383-Section 01, TR 11:00-12:15
Class location: Lib Art 119
PREREQUISITES: FIN 312 and junior standing
INSTRUCTOR:
Duong Nguyen, Ph.D.
Office
Room 220, College of Business
Phone
(508) 999 – 8070
Email
dnguyen2@umassd.edu
Website
http://www.faculty.umassd.edu/duong.nguyen
OFFICE HOURS:
Monday
11:00-12:00 and 1:30-4:30
Wednesday 11:00-12:00 and 1:30-4:30
and also by appointment
COURSE DESCRIPTION
This course will mix both description and theory. On the descriptive side we will cover the
purpose and operation of securities markets in the United States and around the world. On the
theoretical side we will cover how we should evaluate investment opportunities to develop a
portfolio that satisfies your risk-return objectives. The quantitative material will draw heavily on
college level algebra and statistics. You will find this class quite challenging if your algebra and
statistics skills are not up to par.
COURSE OBJECTIVES
The objective of this course is to discuss the material of practical use for students whether they
plan to pursue a career of an investment professional or want to be a sophisticated individual
investor. Here are some of the learning outcomes for the course:
1. To understand the organization and function of primary and secondary securities markets.
2. To analyze the characteristics of the major stock and bond market indices in the United
States and internationally.
3. To calculate the expected and historical rates of return for an individual asset or a
portfolio of assets.
4. To calculate the risk of an individual investment or a portfolio.
5. To understand the factors which determine the required rate of return for an investment.
6. To understand the role of asset allocation in investment planning, and to understand why
investment goals change over a person’s lifetime and circumstances.
7. To understand the advantages of global diversification.
8. To understand the Markowitz portfolio theory.
9. To understand theoretical pricing models such as the Capital Asset Pricing Model
(CAPM) and the Arbitrage Pricing Theory (APT)
10. To analyze the major determinants of an economy’s long term and short term growth and
discuss indicators that can be used to forecast economic variables.
11. To understand the basic features of bonds which affect their risk, return and value.
12. To understand and compute the expected rates of return on bonds, and the value of bonds,
and to and examine the characteristics that cause changes in a bond’s price.
13. To conduct industry and company analysis, and to estimate the intrinsic value of a
company.
COMPETENCIES AND CONTACT HOURS
The student will be introduced to:
The profession of investments and opportunities for investment personals
The student will understand:
Nature of investments and investment alternatives
Relationship between risk and return from investments
Portfolio selection and capital market theory
Market efficiency
Valuation of Bonds and Stocks and investment strategies
Market and Industry analysis
Fundamental and Technical analysis
The student will be able to:
Analyze stocks and bonds and make recommendation for investments
Construct portfolios with desired risk and return characteristics
Total
1
2
6
6
3
6
6
6
6
3
45
TEXTBOOK AND REQUIRED MATERIALS
(1)Essentials of Investments, by Zvi Bodie, Alex Kane and Alan J. Marcus, 7th Edition, McGraw
Hill Irwin, (Required). ISBN#: 9780073405179
A customized version of this book is available in the UMD book store
(2)Financial Calculator (Texas Instruments BA II Plus, recommended)
(3) Stock Trak registration
(4) Wall Street Journal (recommended)
Financial calculator is a must in this class. You will not be able to do the assignments or the
exams without one. I strongly recommend all of you get familiar with the calculator by reading
the manuals posted on my website.
ATTENDANCE
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Regular attendance and participation is essential for success. All assigned material should be
carefully read and end-of-chapter exercises should be attempted before each class meeting.
If you miss any material, it is your responsibility to obtain the information from another
student.
Do not consistently arrive late or leave early. If you have to leave or enter the room while a
discussion or presentation is in progress, be quiet and discreet. A continued absence or
several absences will adversely impact your grade.
Do not conduct private conversations while class is in session. However, participation in
class discussions is expected.
TENTATIVE COURSE SCHEDULE
Meeting
Topic
09/03/09
09/10/09
Class Introduction
Investments: background and issues
Investments: background and issues
Financial securities
Financial securities
1
1
2
2
09/15/09
Securities markets
3
09/17/09
Securities markets
3
09/22/09
Bond prices and yields
9
09/24/09
Bond prices and yields
9
09/29/09
Bond prices and yields
9
10/01/09
4
10/08/09
Mutual fund and other investment
companies
Mutual fund and other investment
companies
Wrap up and Review
10/13/09
10/15/09
Follow Monday's schedule (no class)
Exam 1
10/20/09
09/08/09
Chapter
Homework and Excel
cases (required)
Chapter exercises
(optional)
Q: 1-19
HW1 due
HW2 due
Q: 1-30
4
HW 3 due
Q: 1-14
Risk and Return
1, 2, 3, 4,
9
5
Excel case 1 due
Q 1: 20
10/22/09
Risk and Return
5
10/27/09
Efficient diversification
6
HW 4 due
Q: 1-19
10/29/09
Efficient diversification
6
11/03/09
CAPM and APT
7
HW5 due
Q: 1-25
10/06/09
11/05/09
CAPM and APT
7
11/10/09
Efficient markets
8
11/12/09
Wrap up and Review
11/17/09
Exam 2
11/19/09
Equity valuation
12
11/24/09
Equity valuation
12
11/26/09
12/01/09
Thanksgiving (no class)
Macroeconomics and industry analysis
11
12/03/09
Financial Statement Analysis
13
12/08/09
Technical analysis
19
12/10/09
Technical analysis
19
12/15/09
Wrap up and Review
Check
calendar
Exam 3
HW6 due
5, 6, 7, 8
Excel case 2 due
Q: 1-16
HW7 due
Q: 1-10
HW8 due
Q: 1-15
HW9 due
Excel case 3 due
Stock Trak Project
due
11, 12, 13
19
EXAMS, HOMEWORKS, PROJECTS AND GRADES
There will be three exams. They are both multiple choice and problem/essay-typed questions.
The exams are not comprehensive, although some material will carry through.
There is no point for end-of chapter exercises. However, it is recommended that all of you should
do them for better understanding about the class materials and for preparation of the exams. The
solutions for the homework are posted on my website.
There will be 9 homework and 3 excel case studies. They are counted toward your final grades.
The homework and excel cases will be posted on my website. The purposes of case studies are to
get you familiar with financial functions in Excel and help you understand more about lectures
with practice problems. Therefore, it is expected that you use as many Excel functions as you
can, try to get Excel to do all the calculations.
Check the syllabus for the due dates. You can either do the homework and the cases on your own
or work in a group of no more than 2 people. Late homework and cases will not be graded.
Attendance will count 5% in your total grade. To have this 5%, you should not miss more than 4
class meetings. I will hand out the sign-in sheet in every class meeting. If the sign-in sheet, for
some reasons, is not distributed to you, you should come ask me after the class. I will base on
these sheets to determine the grade for attendance at the end of the semester.
Exam 1:
Exam 2:
Exam 3:
Homework and excel cases
(9 homework and 3 excel cases)
Stock Trak Project
Attendance
22%
22%
23%
18% (1.5% each)
Total :
100%
10%
5%
The distribution grade for attendance as follows
Attendance grade
5%
4%
3%
2%
1%
0
No. of meetings missed
<=4
5
6
7
8
>8
Your grade will be based on the following schedule
A+ (98-100); A (92-97); A- (90-91);
B+ (86-89); B (80-85); B- (77-79);
C+ (72-76); C (65-71); C- (60-64);
D+ (55-59); D (50-54); F (0-49)
Absolutely no incomplete grades or make-up examinations will be given unless a medical or
personal EMERGENCY precludes the completion of the exam. Students who are eligible
for makeup need to finish the makeup within 48 hours of the scheduled time. Otherwise,
missing an exam on the scheduled date will automatically earn a zero score.
DISABILITY SERVICES
If a student has a disability and needs assistance, please notify the Instructor and contact the
Office of Disability Services for Students to make arrangements for the appropriate modification
and/or assistance.
RELIGIOUS HOLIDAYS
Any student may request to be excused from a scheduled exam to observe a religious holy day of
their faith. The student must notify the instructor and arrange to take the exam in advance of the
regularly scheduled exam date.
MISCELLANEOUS
Cell phones and beepers are to be turned off or set to “silent mode” during class and exams.
The last day to drop the course with a grade of “DR” or “WI” is: Check school calendar.
POLICIES FOR ALL EXAMINATION – READ CAREFULLY
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All examinations will start at the scheduled time.
Exams are to be completed individually. You are not to discuss any question with any
individual.
Make sure that your calculator works and you have extra batteries available. A nonworking calculator will be no excuse for a make-up test.
You may be asked to produce a photo ID during the examination.
Bring at least two sharpened No. 2 pencils.
Students are permitted the use of a calculator and a formula sheet.
Tests will typically consist of multiple choices and essay questions
You must hand in the examination, answer sheet and formula sheet at the end of the
examination.
If you do not hand in your examination before the scheduled end time, one point will be
deducted for every extra minute. Ten minutes after the end time, I will assume you have
not taken the test and get a score of zero.
ACADEMIC MISCONDUCT
Every student must respect the right of all to have an equitable opportunity to learn and honestly
demonstrate the quality of their learning. Therefore, all students must adhere to a standard of
academic conduct, demonstrating respect for themselves, their fellow students, and the
educational mission of the University. As a student in the College of Business taking this class:
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I will not represent someone else’s work as my own
I will not cheat, nor will I aid in another’s cheating
I will be honest in my academic endeavors
I understand that if I am found responsible for academic misconduct, I will be subject to
the academic misconduct procedures and sanctions as outlined in the Student Handbook
Failure to adhere to the guidelines stated above may result in one of the followings:

Expulsion: Permanent separation of the students from the University, preventing
readmission to the institution. This sanction shall be recorded on the student transcript

Suspension: Temporary separation of the student from the University for a specific
period of time
By taking this class, I promise to adhere to UMass Darthmouth Student Code of Academic
Integrity. For details on the policy and procedure, please check the Student Handbook.
Stock-Trak Project
In order to gain some valuable insights about investment, you will be required to work in a team
of two persons or work on your own in managing a simulation portfolio of $500,000 via StockTrak. The Stock-Trak account will allow you to buy, sell, buy on margin, and sell short most
common stocks, stock options, and mutual funds. You can also buy and sell certain index
options, bonds, futures, and international stocks. In addition, Stock-Trak allows the possibility to
place market orders, limit orders, and stop orders. The maximum number of trades is limited to
200. This simulation is set up for the 12 weeks of class.
You need to go to http://www.stocktrak.com/tradingrules.php and print out the registration
materials/trading rules. Following the “Read Rules” link in the left hand column of the home page,
directs you to the same link. After printing out the trading rules, go to the following link to register
for your account
http://v2.stocktrak.com/public/members/registrationstudents.aspx?p=FIN383
The price is $26.95 per account. Use the discount code BK0707 when you register to get $5 off. The
final price after discount is $21.95.
Trading can begin Sep 10th and will end Nov 30th.
It is important that you read the Rules before you do anything.
At the end of the semester, you are required to submit a written report which should include the
followings:
1. Investment Objective: you are required to construct a policy statement which specifies
your investment goals/objectives. When constructing the policy statement, the most basic
place to start is an analysis of your risk tolerance and desired return on your portfolio. You
have 12 weeks to earn a return on this portfolio.
There are 2 steps in constructing your investment policy.
(1) Asset Allocation: determine how many percent of your money should be invested in
stocks, how many percent in bonds, futures, options, real estate, etc. Since this is an
introduction to investment class, we consider only 3 major assets: stocks, bonds, and cash
(2) Security analysis: After the asset allocation step, you have to decide which type of
securities you should invest in each asset categories. For example, should you invest in small
or big stocks, high growth or low growth stocks, etc.
Although it is really up to you to decide your strategies, there are some certain requirements
you need to keep in mind as follows: never have more than 10% in cash. No more than 10%
of your fund can be in one stock. At least 20% invested in bond (to make sure your investment
strategy is not too aggressive)
Some questions you might want to consider: What is your risk tolerance (i.e., are you more
risk averse person or less risk averse person, are you willing to take higher risk for higher
return), What is the time horizon for investing? What are your strategies to invest your
money in order to achieve the desired return within the investment time horizon.
2. By Oct 5th, at least 50% of your portfolio should be invested. Calculate the percentage of
stocks, bonds, cash in the portfolio on Oct 5th as follows
 %stock = (total value of stocks)/(total value of portfolio)
 %bond = (total value of bonds)/(total value of portfolio)
 % cash = 1-%stock - %bond
 Create a pie chart to reflect the structure of the initial portfolio. For example, if your
portfolio allocates 60% stocks, 30% bond, 10% cash, the pie chart is as follows
Asset Allocation as of Oct 5th, 2009
10%
stock
30%
bond
cash
60%
3. At the end of the trading period, at least 90% of your fund has to be invested. Also, there is a
minimum of $5000 has to be used every week. You can buy or sell but make sure you need
to trade at least $5000 every week.
4. Over the course of the trading period, make at least 50 transactions that have to include all
buy, sell, short sell, and short cover transactions at the market price. We will go into more
detail of these transactions when we study chapter 3. You should print out the transaction
history from your account with Stock-Trak and include it in the report
5. Over the course of the trading period, make at least 10 limit order that includes limit-buy
order, limit-sell order, stop-buy order, and stop-sell order transactions. We will go into more
detail of these transactions when we study chapter 3. You should print out the limit
transaction history from your account with Stock-Trak and include it in the report
6. Pick any 10 transactions and explain why you choose to make those transactions (the
explanation can come from fundamental analysis, technical analysis, or recommendation
from some experts, etc.)
7. Create a pie chart reflecting the structure of your portfolio at the end of the trading period
Nov 30th. Again, calculate the percentage of stocks, bonds, and cash on Oct 5th (similar to
requirement 2)
8. Calculate your portfolio return every week and compare with the return on the market index
S&P 500. Put the information in Excel. You need to graph your portfolio return and the S&P
500 index return. The y-axis is the return, the x-axis is the week.
Here is an example
date
Sep 10
Sep 17
Sep 24
Oct 01
Oct 08
Oct 15
Oct 22
Oct 29
Nov 05
Nov 12
Nov 19
Nov 30
Week
0
1
2
3
4
5
6
7
8
9
10
11
Porfolio Value
500000
Portfolio Return
-
S&P 500
-
S&P 500 return
-
The return is calculated as follows
Return in week 1 = (ending value – beginning value)/beginning value
= (Sep 17 – Sep 10)/ (Sep 10)
(to get the historical data on S&P 500, go to Yahoo Finance webpage, and download the
historical data corresponding to your trading period and compute the weekly return of S&P500,
The value you should get for S&P500 is the adj. close, the last column on the website)
3.00%
2.00%
1.00%
0.00%
-1.00%
0
2
4
6
8
10
12
My R eturn
S &P R eturn
-2.00%
-3.00%
-4.00%
-5.00%
9. Write an essay evaluating the performance of your portfolio over the trading period. How
does your portfolio compare with the market? Is it better or worse? Provide some explanation
why your portfolio performs better or worse than the market (for example, did you follow
your investment policy consistently (you can compare the initial structure and ending
structure), what types of securities, industries you tend to invest, what transactions you earn a
lot of return, what transactions you lose a lot of money, what else you should have done to
improve your performance, what lessons you have learned during this portfolio simulation so
you can apply to your personal investing in the future, etc.). You should include an analysis
of macroeconomics, industries, financial markets, stock-specific news, events that may have
affected the risk and return performance of your portfolio
Top 3 accounts whose returns are highest in the class and have at least 50 transactions will
have 3% bonus added to your total grade.