TOURO COLLEGE COURSE SYLLABUS
DEPARTMENT:
COURSE TITLE:
COURSE NUMBER:
PREREQUISITES:
CREDIT HOURS:
DEVELOPER:
LAST UPDATE:
Finance
Security Analysis
EBF 310
EBE 332
3
Meyer Peikes
September 1, 2003
COURSE DESCRIPTION
This course is a continuation of the introductory investments’ course. In this course we
will probe deeply into the valuation methodologies employed by securities analysts.
These include, but are not limited to, CAPM, dividends and earnings models, growth
models, etc. The models will be applied to stocks, bonds and options. Portfolio analysis
and the Markowitz approach will be dealt with in great detail. A hands-on, real world
related perspective will be utilized throughout the course.
Students are urged to read the appropriate text material, as detailed in the attachment,
prior to class. In addition, daily readership of the financial section of The New York
Times or the Wall Street Journal is encouraged. A mid-term and final will each count
toward half of the final grade. It is strongly recommended that students bring a financial
calculator to class, and participate in class discussions. Homework problems will be
continuously assigned to measure the comprehension of the students and the degree of
absorption of the lecture materials.
COURSE / DEPARTMENTAL OBJECTIVES
In this course the student will:
 Learn many methods and approaches to valuation
 Learn how to evaluate information
 Techniques of portfolio construction
 How to analyze portfolio performance
 Do a hands on project putting many of the ideas of the course to practical use
 Learn how many important measures are calculated
 About innovation & creativity in the financial world
COURSE/ INSTITUTIONAL OBJECTIVES
This course is intended to develop students’ quantitative skills in evaluative investments.
It will further their professional career interests in finance by seeing up close what
securities analysts really do and how to do it. The research project will enhance the
students writing & communication skills in addition to enhancing their research abilities.
COURSE CONTENT:
Topic
I.
Introduction
II.
Value and Price
1) Supply, demand and equilibrium
2) Effect of short sales
3) Market efficiency
III. Risk free securities
1) Nominal and real rates of return
2) Spot rates and forward rates
3) Yield curves
4) Duration
5) Theories of term structure
IV. Risky securities
1) The insurance approach
2) State preference approach and complete markets
3) Probabilistic forecasting
4) Expected (holding period) return
V. Portfolio analysis and selection
1) Measures of return and risk
2) Two-security portfolio analysis
3) Non satiation and risk-aversion
4) Efficient portfolios and investment selection
Midterm
VI. CAPM
1) Capital market line
2) Security market line
3) The market model
4) Unique, market and total risk
VII. Bonds
1)
2)
3)
4)
5)
Yield spreads and arbitrage
Coupon rates and time to maturity
Immunization and duration
Promised ytm and default premiums
Bond theorems
6) Bond swaps
VIII. Common stock valuation
1) Dividends and valuation models
2) Growth models
3) Informational content of dividends
4) Other valuation models and approaches
IX. Options
1) Calls and puts
2) Profit-loss diagrams
3) Value boundaries
4) Binomial model
5) Black-Scholes formula
6) Portfolio insurance
X. Investment companies
1) Mutual funds
2) Evaluation techniques
3) Performance-risk analysis
XI. APT
1) Factor models
2) Arbitrage portfolios
3) Synthesis of APT and CAPM
HARDWARE/ SOFTWARE/ MATERIALS REQUIREMENT
Students are strongly recommended to read the Wall Street Journal (daily) & Barron’s
(weekly). Software is utilized for the evaluation portion of the term project.
COURSE REQUIREMENTS
Students are strongly urged to try to read the appropriate text material of the topic that
will be covered in class, beforehand. In addition, all students are required to keep current
on all relevant financial current events by reading the Wall Street Journal daily. Student
subscription rates will be made available in order to ease the financial burden of this
requirement. References to specific articles will be made in class.
It is highly recommended that students attend all classes and participate in class
discussions. Class participation will be used to “fine tune” the final grade.
Homework problems will be assigned continuously. The possession of a scientific or
financial calculator will prove to be a valuable aid in problem solving.
GRADE GUIDELINES
Midterm Examination
35%
Final Examination
Term Project
35%
30%
METHODOLOGY
Lectures combined with comprehensive homework exercises are utilized to get the
material across to the students. In addition a term project in which there is continuous
analysis of a firm and its underlying security is essential to the learning process.
COURSE TEXT
Title:
Author:
Pub. Date:
Publisher:
ISBN:
Investments
W. Sharpe, G. Alexander. & J. Bailey
1999
Prentice Hall
0-13-010130-3
BIBLIOGRAPHY:
Value & Price
Title:
Author:
Pub. Date:
Publisher:
Constraints on Short-Selling and Asset Price Adjustment to Private
Information
Douglas Diamond & Robert Verrecchia
June 1987
Journal of Financial Economics 18, no. (2 pg. 277-311)
Title:
Author:
Pub. Date:
Publisher:
Efficient Capital Market: A Review of Theory and Empirical Work
Engere F. Fama
May 1970
Journal of Finance 25, no. 5 (pg. 383-417)
Title:
Author:
Pub. Date:
Publisher:
Efficient Capital Market II
Engere F. Fama
December 1991
Journal of Finance 46, no. 5 (pg. 1575-1617)
Risk-Free Securities
Title:
Author:
Pub. Date:
Publisher:
About the Term Structure of Interest Rates
Mark Kritzman
July/ August 1993
Financial Analysts Journal, no. 4 (pg. 14-18)
Title:
Author:
Pub. Date:
Understanding the Term Structure of Interest Rates: The Expectations
Theory
Steven Russell
Federal Reserve Bank of St. Louis, Review 74, no. 4 (pg. 36-50)
Risky Securities & Portfolio Analysis
Title:
Author:
Pub. Date:
Publisher:
Portfolio Selection
Harry Markowitz
March 1952
Journal of Finance 7, no.1 (pg. 77-91)
Title:
Author:
Pub. Date:
Publisher:
Measuring Investment Risk: A Review
Leslie Balzer
Fall 1995
Journal of Investing 4, no. 3 (pg 5-16)
Title:
Author:
Pub. Date:
Publisher:
A Simplified Model for Portfolio Analysis
William Sharle
January 1963
Management Science 9, no. 2 (pg. 277-293)
Title:
Author:
Pub. Date:
Publisher:
The Minimum Number of Stocks Needed for Diversification
Gerald Newbould & Percy Poon
Fall 1993
Financial Practice and Education 3, no. 2 (pg. 85-87)
Title:
Author:
Pub. Date:
Publisher:
Portfolio Optimization in Practice
Philippe Jorion
January/ February 1992
Financial Analysts Journal 48, no.1 (pg. 68-74)
Title:
Author:
Pub. Date:
Publisher:
Portfolio Selection Based on Return, Risk and Relative Performance
George Chow
March/ April 1995
Financial Analysts Journal 51.no.2 (pg. 54-60)
CAPM
Title:
Author:
Pub. Date:
Publisher:
Capital Asset Prices: A Theory of Market Equilibrium Under Conditions
of Risk
William Sharle
September 1964
Journal of Finance 19, no.3 (pg. 425-442)
Title:
Author:
Pub. Date:
Publisher:
Securities Prices, Risk and Maximal Gains From Diversification
John Lintner
December 1965
Journal of Finance 20, no.4 (pg. 587-615)
Title:
Author:
Pub. Date:
Publisher:
Risk, Return and Equilibrium: Some Clarifying Comments
Engere Fama
March 1968
Journal of Finance 23, no.1 (pg. 29-40)
Title:
Author:
Pub. Date:
Publisher:
The CAPM is Granted Dead or Alive
Engere Fama
December 1996
Journal of Finance 51, no. 5 (pg. 1947-1958)
Bonds
Title:
Author:
Pub. Date:
Publisher:
The Credit Rating Industry
Richard Cantor
December 1995
Journal of Fixed Income 5, no. 3 (pg. 10-34)
Title:
Author:
Pub. Date:
Publisher:
The Effect of Bond- Rating Changes on Bond Price Performance
Gailen Hite & Arthur Waga
May/ June 1997
Financial Analysts Journal 53, no. 3 (pg. 35-51)
Title:
Author:
Pub. Date:
Publisher:
Ganging the Default Premium
Rye Gordon
January/ February 1974
Financial Analysts Journal 30, no. 1 (pg. 49-52)
Title:
Author:
Pub. Date:
Publisher:
Determinants of Risk Premiums on Corporate Bonds
Lawrence Fisher
June 1959
Journal of Political Economy 67, no. 3 (pg. 217-237)
Title:
Author:
Pub. Date:
Publisher:
Ratio Stability and Corporate Failure
Ismael Dam Bolena & Sarkis Khoury
September 1980
Journal of Finance 35, no. 4 (pg. 1017-1026)
Title:
Author:
Pub. Date:
Publisher:
How to Immunize a Bond Investment
Charles H. Gushee
March/ April 1981
Financial Analysts Journal 37, no.2 (pg. 44-51)
Stocks
Title:
Author:
Pub. Date:
Publisher:
Dividend Earnings & Stock Prices
M. J. Gordon
May 1959
Review of Economics and Statistics 41, no.2 (pg. 99-105)
Title:
Author:
Pub. Date:
Publisher:
Industry Costs of Equity
Fama, Engere & Kenneth French
February 1997
Journal of Financial Economics 43, no. 2 (pg. 153-193)
Title:
Author:
Pub. Date:
Publisher:
Price Earning Ratios and Fundamental Stock Valuation
Bajikowski, John
July 1991
AAII Journal 13, no.6 (pg. 33-36)
Title:
Author:
Pub. Date:
Publisher:
The Response of Stock Prices to Permanent and Temporary Stocks to
Dividends
Lee, Bong-Soo
March 1995
Journal of Financial and Quantitative Analysis 30, no. 1 (pg. 1-22)
Title:
Author:
Pub. Date:
Publisher:
Dividend Policy, Growth, and the Valuation of Shares
Miller, Merton & Franco Modigliani
October 1961
Journal of Business 34, no. 4 (pg. 411-433)
Title:
Distribution of Incomes of Corporations Among Dividends, Retained
Earnings and Taxes
Lintner, John
May 1956
American Economic Review 46, no. 2 (pg. 97-113)
Author:
Pub. Date:
Publisher:
Options
Title;
Author:
Pub. Date:
Publisher:
Simplifying Portfolio Insurance
Black, Fisher & Robert Jones
Spring 1988
Journal of Portfolio Management 14, no. 3 (pg. 48-54)
Title:
Author:
Pub. Date:
Publisher:
The Pricing of Options and Corporate Liabilities
Black, Fisher & Myron Scholes
May/ June 1973
Journal of Political Economy 81, no. 3 (pg. 639-654)
Investment Companies
Title:
Author:
Pub. Date:
Publisher:
Returns from Investing in Equity Mutual Funds
Malkiel, Burton
June 1995
Journal of Finance 50, no. 2 (pg. 549-572)
Title:
Author:
Pub. Date:
Publisher:
On Persistence in Mutual Fund Performance
Carlart, Mark
March 1997
Journal of Finance 51, no. 1 (pg. 57-82)
Title:
Author:
Pub. Date:
Publisher:
Morning Star’s Risk- Adjusted Ratings
Sharre, William
July/ August 1998
Financial Analysts Journal 54, no. 2 (pg. 21-33)
APT
Title:
Author:
Pub. Date:
Publisher:
The Arbitrage Theory of Capital Asset Pricing
Ross, Stephen
December 1976
Journal of Economic Theory 13, no. 3 (pg. 341-360)
Title:
Author:
Pub. Date:
Publisher:
Some Results in the Theory of Arbitrage Pricing
Ingersoll, Jonathan
September 1984
Journal of Finance, no. 4 (pg. 1021-1039)
Title:
Author:
Pub. Date:
Publisher:
Portfolio Management
Grinold, Richard
1995
Chicago: Probus (Chapter 7)
Title:
Author:
Pub. Date:
Publisher:
The Number of Factors in Security Returns
Brown, Stephen
December 1989
Journal of Finance 44, no. 5 (pg. 1247-1262)