Lahore University of Management Sciences

FINN 353 - Investments

Fall Semester 2014
Instructor
Room No.
Office Hours
Email
Telephone
Secretary/TA
TA Office Hours
Course URL (if any)

COURSE BASICS

Credit Hours
Lecture(s)
Recitation/Lab (per week)
Tutorial (per week)

COURSE DISTRIBUTION

Core
Elective
Open for Student Category
Close for Student Category

Dr. Zaghum Umar

SDSB-324
Tuesday: 14:00 15:00hrs
zaghum.umar@lums.edu.pk
042-3560-8434
Faisal Shafiq Khan/TBA
TBA
suraj.lums.edu.pk

3
Nbr of Lec(s) Per Week
Nbr of Lec(s) Per Week
Nbr of Lec(s) Per Week

Duration
Duration
Duration

75 Minutes

Elective
Junior/Senior

COURSE DESCRIPTION
An introductory course in the analysis of investments and portfolio management. The course examines various investment
opportunities available in modern financial markets, functioning of securities markets, diversification concepts, asset pricing
models, analytical techniques for valuation of stocks and fixed income securities using fundamental and technical analysis, portfolio
construction and evaluation, and introduction to derivative securities. Central to the investment selection and management
process is the notion of portfolio diversification. We will consider how investors allocate their funds by forming and managing
portfolios containing stocks, bonds, mutual funds, and alternative investment products. Students are also introduced to the major
portfolio management strategies and investment styles pursed by professional investors. An investment game will be played to
give students a better understanding of trading strategies and portfolio management. The course focus is on application of theory
to the practice of investment management.

COURSE PREREQUISITE(S)

Principles of Corporate Finance

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COURSE LEARNING OUTCOMES (CLO)

Upon successful completion of the course, students should be able to:

1. Demonstrate understanding of the nature and operations of capital markets and trading of securities and
other investment vehicles.
2. Demonstrate understanding of the theoretical underpinnings of investment analysis and portfolio concepts
within the context of modern portfolio theory and its extensions.
3. Demonstrate understanding of procedures involved in analyzing investment alternatives under conditions
of uncertain outcomes.
4. Demonstrate application of empirical evidence, theoretical constructs, and insights from practice to
manage investments.
5. Demonstrate understanding of the alternative methodologies to evaluate portfolio performance.
6. Demonstrate knowledge of derivative markets and instruments with special attention to their application
in managing portfolio risk.
7. Present and defend their analysis effectively, both in oral and written forms, while working in teams as
well as independently. (General Learning Goal)

UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES

General Learning Goals & Objectives
Goal 1 Effective Written and Oral Communication
Objective: Students will demonstrate effective writing and oral communication skills
Goal 2 Ethical Understanding and Reasoning
Objective: Students will demonstrate that they are able to identify and address ethical issues in an organizational
context.
Goal 3 Analytical Thinking and Problem Solving Skills
Objective: Students will demonstrate that they are able to identify key problems and generate viable solutions.
Goal 4 Application of Information Technology
Objective: Students will demonstrate that they are able to use current technologies in business and management
context.
Goal 5 Teamwork in Diverse and Multicultural Environments
Objective: Students will demonstrate that they are able to work effectively in diverse environments.
Goal 6 Understanding Organizational Ecosystems
Objective: Students will demonstrate that they have an understanding of Economic, Political, Regulatory, Legal,
Technological, and Social environment of organizations.
Major Specific Learning Goals & Objectives
Goal 7 (a) Discipline Specific Knowledge and Understanding
Objective: Students will demonstrate knowledge of key business disciplines and how they interact including
application to real world situations (Including subject knowledge).
Goal 7 (b) Understanding the science behind the decision-making process (for MGS Majors)
Objective: Students will demonstrate ability to analyze a business problem, design and apply appropriate
decision-support tools, interpret results and make meaningful recommendations to support the decision-maker

Lahore University of Management Sciences

Indicate below how the course learning objectives specifically relate to any program learning goals and objectives.

PROGRAM LEARNING GOALS AND

OBJECTIVES
Goal 1 Effective Written and Oral
Communication

Goal 2 Ethical Understanding and

Reasoning
Goal 3 Analytical Thinking and Problem
Solving Skills
Goal 4 Application of Information
Technology
Goal 5 Teamwork in Diverse and
Multicultural Environments
Goal 6 Understanding Organizational
Ecosystems

Goal 7 (a) Discipline Specific Knowledge

and Understanding
Goal 7 (b) Understanding the science
behind the decision-making process

COURSE LEARNING OBJECTIVES

COURSE ASSESSMENT ITEM

Students will be given a number

opportunities to demonstrate their ability
to communicate effectively (CLO #7)

CP, Project write up & presentation,

Exams

Analytical Thinking and Problem Solving

Skills are an essential component of the
course (CLO 1-7)
Application of information technology in
for assignments, projects
Students work in groups for group
projects
Develop students understanding of the
interaction of micro (firm specific)
variables with the macro (securities
markets, industry, and the economy)
variables
A detailed introduction to the various of
topics in Investments (CLO 1-6)

CP, Quizzes and exams

Project write up & presentation
Group project
CP, Project write up & presentation,
Exams, quizzes

CP, quizzes and exams

GRADING BREAKUP AND POLICY

CLASS ROOM POLICY
Attendance and Class Participation: 10%.
Students are expected to attend all classes. If you are not present at the beginning of a class or leave class during the session,
without instructors prior permission, you will be considered absent for the day.
Students must review the assigned materials in advance of the class in order to contribute meaningfully to class discussions. A
significant portion of the course grade depends on the quality and level of your involvement and input in class discussions.
POLICY REGARDING EXAMINAIONS QUIZZES AND OTHER GRADING INSTRUMENTS.
There is a zero tolerance policy (ZTP) for any undesirable behavior or undeserving attempt to improve your grades during the
quizzes and examinations. Such action can result in cancelling your examination paper. It may also result in disciplinary actions
by Disciplinary Committee.
Please carefully weigh in your actions costs and benefits and always show an ethical and moral deportment and behavior
always.
Quiz(s) and Assignments: 20%.
Several unannounced quizzes will be given on the assigned material during the term. No make-up quizzes will be given. However,
the lowest quiz grade including a zero for a missed quiz will be disregarded. No sharing of calculators, or any help sheet be allowed.
There will be several graded assignments during the term to reinforce financial concepts and to encourage usage of spreadsheets
such as Excel in performing financial analysis. The format and other requirements will be specified by the instructor. All assignments
must be submitted on the due date. Late submissions will not be accepted. In addition, non-graded end-of-chapter problems may
be assigned to stimulate class discussions.

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Midterm Examination: 20%
The examination could be mix of MCQ short exercise and short explanations.
There is a zero tolerance for any undesirable behavior to undeserving attempt to improve your grades during the quizzes and
examinations.
Group Projects 25%: Students are required to form teams of 3-4 students (depending on class size) by session 4 for group tasks. (i)
Sector Report: Each group will select an industry sector/subsector and perform industry and fundamental analysis of at least 2
leading companies in that sector. The sectors for the analysis must be approved by the instructor. The sector analysis reports will be
th

due at the beginning of the 27 class session. Late submissions will not be accepted. A peer evaluation form will be provided to
evaluate contribution of each group member. Your peer evaluation will impact your grade on the project report. (ii) Investment
Game: Each group will be entrusted with the same amount of initial investment and will be asked to manage a portfolio of stocks
on behalf of a client for a certain amount of time. Portfolio performance will be evaluated on the basis of total return at the end of
the game. (iii) Money Masters Report: Multiple teams will be assigned an investment guru from the Money Masters to prepare a
brief writ-up and be ready for a presentation on the assigned person as per the class schedule. The presentation should focus on
the investment strategies, investment insights (Dos and Donts of investments), including key personal traits. Students are
encouraged to use the Internet to obtain more current information.
FINAL EXAMINATION: 25%.
The examination could be mix of MCQ short exercise and short explanations. Students may also expect a question or two from the
assigned report or a case or a situation analysis.
Calculator Requirement: You will need a financial calculator capable of performing present value/future value functions. For
example, Texas Instrument BA II meets these criteria. Many other brands are equally suitable for this course.

EXAMINATION DETAIL

Midterm
Exam

Final Exam

Yes/No: Yes
Combine Separate: - N/A
Duration: 2 Hours
Preferred Date: Week 8
Exam Specifications:

Yes/No: Yes
Combine Separate: N/A
Duration: 2 Hours
Exam Specifications:

Lahore University of Management Sciences

COURSE OVERVIEW/SCHEDULE
LECTURE/ MODULE
TOPICS

RECOMMENDED
READINGS

Module 1: Overview of Investment Environment and Management Process

Session 1
Investments: Backgrounds
and Issues
BKM Ch 1,2
Asset Classes and Financial
Instruments

SESSION OBJECTIVES
Overview of investment
environment, type of financial
markets, and introduction to
the portfolio construction
process.
Examine the various asset
classes, instruments, and
understand the use and
construction of market
indexes.
Review the functioning of
financial markets and its key
players.

Session 2

Asset Classes and Financial

Instruments: Stock and Bond
Market Indexes

BKM Ch 2

Session 3

Functioning of Security
Markets and Trading
Mechanisms

BKM Ch 3

Session 4

Functioning of Security
Markets and Trading
Mechanisms

BKM Ch 3

Session 5

Mutual Funds and Other

Investment Companies

BKM Ch 4

Session 6

Mutual Funds and Other

Investment Companies
Pakistani Context
The Investment
Management Process

BKM Ch 4

The Investment
Management Process

BKM Ch 22

Learn to develop Investment

Policy Statement (IPS) for
individual and institutional
investors.

BKM Ch 5,6

Review historical risk-return

relationship, modern
portfolio theory, and
estimation of risk measures.
Develop understanding to
construct optimal portfolios,
and use index models to
analyze risk characteristics of
securities and portfolios.

Session 7

Module 2: Portfolio Theory and Asset Pricing

Session 8
Risk and Return: Past and
Prologue
Efficient Diversification
Session 9

Diversification and Portfolio

Risk
Single Index Model and Beta
Estimation

BKM Ch 22

BKM Ch 6

Understand the trading

practices in stock exchanges
and mechanics of buying on
margin and short selling.
Examine the benefits of
investing through investment
companies, classification of
mutual funds by objectives
and styles, fee structures, and
performance.
Review the mutual funds
industry of Pakistan.
Overview of the portfolio
management process.

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Session 10

Capital Asset Pricing and

Arbitrage Pricing Theory

BKM Ch 7

Session 11

Bond Prices and Yields

BKM Ch 10

Session 12

Managing Bond Portfolios

BKM Ch 11

Session 13

Managing Bond Portfolios

BKM Ch 11

Module 3: Investment Analysis, Empirical Evidence and Investment Strategies

Session 14
Macroeconomic and
BKM Ch 12
Industry Analysis

Session 15

Macroeconomic and
Industry Analysis
Applications of Fundamental
Analysis

BKM Ch 12

Session 16

Equity Valuation
Discounted Cash Flow Models

BKM Ch 13

Session 17

Equity Valuation Other

Valuation Approaches

BKM Ch 13

Session 18

The Efficient Market

Hypothesis (EMH)

BKM Ch 8

Session 19

EMH Implications for

Portfolio Strategies

BKM Ch 8

Session 20

Investment Styles: Value

versus Growth

Class Notes & Reading

Understand the implications

of capital market theory for
asset pricing, use security
market line, APT and
multifactor models to identify
mispriced securities.
Develop understanding of the
bond markets, pricing and
yield determination, and how
different bond features
impact bond yields.
Analyze bond features
impacting price sensitivity to
interest rates using duration
and convexity measures.
Evaluate active versus passive
bond portfolio strategies and
immunization for various
investment horizons.
Analyze the effects of
macroeconomic and industry
factors on firm performance
and industry earning
prospects over time.
Understand the relevance of
macroeconomic and industry
factors in fundamental
analysis the Top-Down
approach.
Apply discounted cash flow
models and alternative
approaches to value
securities.
Examine relative and other
security valuation
methodologies.
Review empirical evidence
that supports and conflicts
with the efficient market
hypothesis.
Evaluate the implications of
EMH for portfolio
management strategies.
Examine the major
investment styles of value
and growth and their track
record.

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Session 21

Selection from Money

Masters: Warren Buffett, T.
Rowe Price, Jim Rogers, and
Peter Lynch

Money Masters

Learning the money masters

(the Dos and Donts);
Student Group Presentations

Session 22

Behavioral Finance and

Technical Analysis

BKM Ch 9

Session 23

Technical Analysis
Momentum Trading

BKM Ch 9

Review the behavioral finance

critique of standard finance
and its relevance for
investments.
Overview of technical analysis
tools and mechanics of
momentum trading.

Module 4: Portfolio Performance Evaluation and Other Topics

Session 24
Portfolio Performance
Evaluation

BKM Ch 18

Session 25

Globalization and
International Investing

BKM Ch 19

Session 26

Overview of Options
Markets

BKM Ch 15, 16

Session 27

Futures Markets and Risk

Management

BKM Ch 17

Session 28
Final Examination (Comprehensive)

Final Exam Review

Understand various riskadjusted measures to

evaluate performance and
decompose portfolio return
into components attributable
to asset allocation and
security selection.
Examine the benefits and
risks of international portfolio
investments with special
reference to emerging
markets.
Overview of the options
market and their usage in
changing the portfolio risk
profile.
Understand the use of
derivatives in managing
portfolio risk.

Lahore University of Management Sciences

TEXTBOOK(S)/SUPPLEMENTARY READINGS
Required Text:

th

Bodie, Kane, and Marcus, Essentials of Investments, 9 Edition, McGraw Hill, 2013. (BKM)
Selected readings from The Money Masters and The New Money Masters by John Train, 1980 and 1989, respectively.
Other Reference Books:

th

Reilly, Frank and Brown, K., Investment Analysis and Portfolio Management, 8 Edition, Thomson South-Western, 2006. ( RB selected chapters only)
th

Malkiel, Burton, A Random Walk Down Wall Street: The Time Tested Strategy for Successful Investing, 10 Edition, W. W. Norton
& Company, 2012.
Supplementary Readings:
Students are encouraged to read financial publications such as The Wall Street Journal, Financial Times; Business Recorder to stay
abreast of developments related to this course.
Supplemental readings in the form of notes or articles on investments with practical and topical applications may be posted on
the course website from time to time.