Lahore University of Management Sciences

FINN 353 - Investments

Fall Semester 2014
Instructor Dr. Zaghum Umar
Room No. SDSB-324
Office Hours Tuesday: 14:00 15:00hrs
Email zaghum.umar@lums.edu.pk
Telephone 042-3560-8434
Secretary/TA Faisal Shafiq Khan/TBA
TA Office Hours TBA
Course URL (if any) suraj.lums.edu.pk

COURSE BASICS
Credit Hours 3
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 75 Minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week Duration
Tutorial (per week) Nbr of Lec(s) Per Week Duration

COURSE DISTRIBUTION
Core -
Elective Elective
Open for Student Category Junior/Senior
Close for Student Category

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 CP, Project write up & presentation,
opportunities to demonstrate their ability Exams
to communicate effectively (CLO #7)
Analytical Thinking and Problem Solving CP, Quizzes and exams
Skills are an essential component of the
course (CLO 1-7)
Application of information technology in Project write up & presentation
for assignments, projects
Students work in groups for group Group project
projects
Develop students understanding of the CP, Project write up & presentation,
interaction of micro (firm specific) Exams, quizzes
variables with the macro (securities
markets, industry, and the economy)
variables
A detailed introduction to the various of CP, quizzes and exams
topics in Investments (CLO 1-6)

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

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

Yes/No: Yes
Combine Separate: N/A
Duration: 2 Hours
Final Exam Exam Specifications:
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COURSE OVERVIEW/SCHEDULE
LECTURE/ MODULE TOPICS
Module 1: Overview of Investment Environment and Management Process
Session 1 Investments: Backgrounds
and Issues
Asset Classes and Financial
Instruments
Session 2 Asset Classes and Financial
Instruments: Stock and Bond
Market Indexes
Session 3 Functioning of Security
Markets and Trading
Mechanisms
Session 4 Functioning of Security
Markets and Trading
Mechanisms
Session 5 Mutual Funds and Other
Investment Companies
Session 6 Mutual Funds and Other
Investment Companies
Pakistani Context
The Investment
Management Process
Session 7 The Investment
Management Process
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
RECOMMENDED SESSION OBJECTIVES
READINGS
Overview of investment
BKM Ch 1,2 environment, type of financial
markets, and introduction to
the portfolio construction
process.
Examine the various asset
BKM Ch 2 classes, instruments, and
understand the use and
construction of market
indexes.
Review the functioning of
BKM Ch 3 financial markets and its key
players.
Understand the trading
BKM Ch 3 practices in stock exchanges
and mechanics of buying on
margin and short selling.
BKM Ch 4 Examine the benefits of
investing through investment
companies, classification of
mutual funds by objectives
and styles, fee structures, and
performance.
BKM Ch 4 Review the mutual funds
industry of Pakistan.
BKM Ch 22 Overview of the portfolio
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.
BKM Ch 6 Develop understanding to
construct optimal portfolios,
and use index models to
analyze risk characteristics of
securities and portfolios.
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Session 10 Capital Asset Pricing and
Arbitrage Pricing Theory
Session 11 Bond Prices and Yields
Session 12 Managing Bond Portfolios
Session 13 Managing Bond Portfolios
Module 3: Investment Analysis, Empirical Evidence and Investment Strategies
Session 14 Macroeconomic and
Industry Analysis
Session 15 Macroeconomic and
Industry Analysis
Applications of Fundamental
Analysis
Session 16 Equity Valuation
Discounted Cash Flow Models
Session 17 Equity Valuation Other
Valuation Approaches
Session 18 The Efficient Market
Hypothesis (EMH)
Session 19 EMH Implications for
Portfolio Strategies
Session 20 Investment Styles: Value
versus Growth
BKM Ch 7 Understand the implications
of capital market theory for
asset pricing, use security
market line, APT and
multifactor models to identify
mispriced securities.
BKM Ch 10 Develop understanding of the
bond markets, pricing and
yield determination, and how
different bond features
impact bond yields.
BKM Ch 11 Analyze bond features
impacting price sensitivity to
interest rates using duration
and convexity measures.
BKM Ch 11 Evaluate active versus passive
bond portfolio strategies and
immunization for various
investment horizons.
BKM Ch 12 Analyze the effects of
macroeconomic and industry
factors on firm performance
and industry earning
prospects over time.
BKM Ch 12 Understand the relevance of
macroeconomic and industry
factors in fundamental
analysis the Top-Down
approach.
BKM Ch 13 Apply discounted cash flow
models and alternative
approaches to value
securities.
BKM Ch 13 Examine relative and other
security valuation
methodologies.
BKM Ch 8 Review empirical evidence
that supports and conflicts
with the efficient market
hypothesis.
BKM Ch 8 Evaluate the implications of
EMH for portfolio
management strategies.
Class Notes & Reading Examine the major
investment styles of value
and growth and their track
record.
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Session 21 Selection from Money Money Masters Learning the money masters
Masters: Warren Buffett, T. (the Dos and Donts);
Rowe Price, Jim Rogers, and Student Group Presentations
Peter Lynch

Session 22 Behavioral Finance and BKM Ch 9 Review the behavioral finance

Technical Analysis critique of standard finance
and its relevance for
investments.
Session 23 Technical Analysis BKM Ch 9 Overview of technical analysis
Momentum Trading tools and mechanics of
momentum trading.
Module 4: Portfolio Performance Evaluation and Other Topics
Session 24 Portfolio Performance BKM Ch 18 Understand various risk-
Evaluation adjusted measures to
evaluate performance and
decompose portfolio return
into components attributable
to asset allocation and
security selection.
Session 25 Globalization and BKM Ch 19 Examine the benefits and
International Investing risks of international portfolio
investments with special
reference to emerging
markets.
Session 26 Overview of Options BKM Ch 15, 16 Overview of the options
Markets market and their usage in
changing the portfolio risk
profile.
Session 27 Futures Markets and Risk BKM Ch 17 Understand the use of
Management derivatives in managing
portfolio risk.
Session 28 Final Exam Review

Final Examination (Comprehensive)

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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.