FINC 315 Advanced Investments: Theory and Practice Course Guide

Course Description

Advanced study in the area of investment management with the emphasis on analysis of modern portfolio theories and advanced investment strategies. This course takes a quantitative approach in the decision-making process and requires an oral and written presentation of computer-based research projects.


Specific, Assessable, Learning Objectives

  1. Compute returns associated with long and short positions as well as special trades and margined accounts and connect the analysis to managing a simulated portfolio.
  2. Compute indices using three construction methods and illustrate their advantages and shortcomings.
  3. Define “portfolio policy” and apply the concept of policy statement to the creation of a simulated portfolio.
  4. Analyze the level of risk, return and co-movement in investment vehicles and connect this analysis to the finding of an optimal allocation mix.
  5. Relate risk to return in terms of single factor models to find mispriced investment vehicles.
  6. Compute and analyze the performance of a portfolio with and without asset pricing models.
  7. Analyze bond and stock characteristics for the purpose of valuation.
  8. Compute bond risk in terms of duration.
  9. Relate the concept of classical immunization to bond portfolios.
  10. Relate market, industry and firm-specific effects to the computation of stock prices using dividend discount models, PE models and free cash flow models.
  11. Analyze and classify simple equity portfolio management strategies.
  12. Classify, analyze, and integrate basic options and futures strategies.
  13. Integrate the concepts of allocation, selection to the construction, management and evaluation of a simulated portfolio.
  14. Prepare and present a prospectus for a simulated portfolio.


Course Outline

The field of finance can be viewed from three perspectives:

  1. Individual market agents making decisions to supply capital to markets;
  2. Firms demanding capital from the market and deciding how to raise funds;
  3. The capital market acting as a pricing mechanism to clear demand and supply.

A course in investments focuses on (1) and (3). We examine how individuals and their agents make choices among investment alternatives, which have uncertain payoffs over multiple time periods. An understanding of risk and return for individual securities and portfolios of securities is used to characterize these decisions. We then evaluate financial decision making in aggregate, for the market as a whole, to describe the process of valuation for different securities.

These fundamental "building blocks" are then applied to different financial instruments including fixed income securities, common stocks, and mutual funds. As a required course for a finance specialization, its primary objective is to offer a broad overview of investment issues. The course is designed to combine some basic principles with practical and topical applications in the form problems and investment reports. Topics to be covered:

 I. BACKGROUND.
   1. Introduction to Modern Investment Theory.
   2. Securities and Markets.
   3.Short selling and Margin
   4. Review of Some Statistical Concepts.
   5. Combining Individual Securities into Portfolios.
 II. PORTFOLIO MANAGEMENT.
   6. Finding the Efficient Set.
   7. CAPM.
 III. PERFORMANCE MEASUREMENT.
   8. Measuring Portfolio Performance
 IV. INTEREST RATES AND BOND MANAGEMENT. 
   9. Bond Valuation
   10. The Term Structure of Interest Rates.
   11. Bond Risk.
 V. STOCK VALUATION.
   12. Stock Valuation.
   13. Issues in Estimating Future Earnings and Dividends.
   14. Market Efficiency.
 VI. DERIVATIVES
   15.Options
   16.Futures


Required Assessment

This course will contain a portfolio simulation project, which focuses upon the creation and the maintenance of a portfolio. The primary objective will be to apply techniques of allocation, selection and protection as well as to track and measure the performance of the portfolio. More specifically, students will familiarize themselves with various statistical tools in their analyses and with primary and secondary data resources (on-line data services and publications) available at the library, the trading lab or on the internet.

In any semester it is expected that the professors teaching this course will assess at least 75 percent of the learning objectives.


Recommended Assessment Measure

The following assessment measures might be used:

  1. The use of problems, essays or cases on the midterm and final to assess selected learning objectives.
  2. The use of case studies or other practical assignments focused on selected learning objectives.
  3. A complete report on the investment activity for the portfolio simulation project.
  4. An oral presentation of the portfolio simulation project.


Statement of Expectations

Students are expected to take an active role in their learning experience and will be expected to read the assigned material and complete written assignments prior to class.

Students should actively participate in class and attempt to use the language of finance and business as they express their questions and ideas.

Since this course will focus on understanding the material and developing the ability to understand its use, students need to allocate sufficient out-of-class time and effort to prepare for in-class activities.


Course Prerequisite:

Since FINC-315, Advanced Investments: Theory and Practice will be an upper level Finance course designed to refine students understanding of Finance theory and practice, the course requires a background in Finance. Therefore, the prerequisites are FINC-301 and FINC-215.


Institutional Mechanism for Providing Feedback for Continuous Quality Improvement

The Department of Finance will annually review the results of assessment from this course and assess their implications for the program students are enrolled in. We will respond in the following manner: seek additional information, and/or alter the course to improve outcomes, and/or discuss deficiencies with other departments providing components of the program that might more directly confront the outcomes observed.