COURSE: INVESTMENT ANALYSIS AND PROTFOLIO MANAGEMENT INSTRUCTOR: WAMUZIRI SIMON ELVIS (MSc.

, BBA) SCHOOL: SCHOOL OF BUSINESS ADMINISTRATION LEVEL: MSC. ACCOUNTING AND FINANCE DEPARTMENT: ACCOUNTING AND FINANCE A: COURSE DESCRIPTION This course provides students with crucial concepts of investment decision-making, portfolio theory and valuation models of financial assets, especially bonds and common stocks. The mean and variance analysis is a basic principle leading students to understand the general feature of portfolios and asset pricing models. The course provides students with a thorough understanding of procedures involved in portfolio management- setting portfolio objectives, determining investment policy, formulating investment strategies, devising rules for updating portfolios. Topics include identifying investor objectives and constraint, recognizing risk and return characteristics of investment vehicles, developing strategic asset allocations among equity, fixed-income and risk-free assets, utilizing derivative securities to manage portfolio risk, and if possible, enhance portfolio returns, and evaluating portfolio and manager performance relative to investment objectives and appropriate benchmarks. B: GENERAL GOAL On completion of this course, students should be knowledgeable in investment management in preparation for careers in financial analysis and financial planning, investment banking and corporate finance. The student should specifically obtain a broad knowledge of the asset allocation process, security markets, market structures, the risk-return characteristics of investment products, and hedging applications with financial innovations through the course materials, lectures, discussions and assignments.

C: SPECIFIC OBJECTIVES/LEARNING OUTCOMES: After successfully completing this course students will be able to: 1. Develop investment policies based on investors objectives, constraints and altitude towards risk. 2. Undertake security analysis, asset allocation and construction of an optional investment portfolio. 3. Conduct portfolio revision in response to changes in market conditions or investors circumstances. 4. Understand taxation, legal and regulatory and ethical issues relevant to fund management. 5. Understand how to measure and manage risk exposure of a portfolio. 6. Evaluate the portfolio performance. 7. Critically examine both the active and the passive strategy of portfolio management. 8. Understand current empirical evidence and its implication in applying investment theory in practice. D: COURSE CONTENT Introduction.............................................................................................4hours 1 2 3 4 Definition of an investment The shareholder wealth maximization goal The agency theory Strategic planning and the investment decision

THE RELATIONSHIPS BETWEEN RISK AND RETURN8hours 1 2 3 2.3.1 2.3.2 Introduction Measurement of Expected Return and Risk on a single Asset. Portfolio theory: Markowitz theory Definition Factors considered in the choice of investments

2.3.3 Two-asset portfolios 2.3.4 Correlation and covariance 2.4 Portfolio theory and diversification

2.4.1 Investors preferences 2.4.2 Efficient portfolios 2.5 Introduction of a risk-free investment 2.5.1 The separation theorem 2.5.2 The market portfolio 2.6 2.7 Portfolio theory and investment decisions The Capital Market Line (CML)

3.0 THE CAPITAL ASSET PRICING MODEL (CAPM)4hours 3.1 Introduction 3.2 Assumptions 3.3 Systematic and Unsystematic Risk 3.4 The Empirical Evidence: Does the CAPM work? 3.5 The CAPM and share prices 3.6 The Beta Factor. 3.7 The Arbitrage Pricing Model (APT) 4.0 VALUATION OF SECURITIES8hour 4.1 Introduction 4.2 Valuation of Fixed-Income securities 4.2.1 Valuation of Bonds 4.2.2 Features of Bonds 4.3 Valuation of preference shares 4.4 Valuation of Equity shares 4.4.1 Problems with valuation of Equity shares 4.4.2 The Dividend Valuation Model (i) Dividend Capitalization Model (ii) Cum div and ex div share prices (iii) Dividend Growth Models Estimating growth rates-historic pattern The earnings retention model

4.5 Convertible debentures and warrants. 3

5.0 ANALYSIS OF DERIVATIVE SECURITIES.8hours 5.1 Option Strategies 5.2 Option Valuation using binomial option pricing and Black-Scholes 5.3 Forwards, Futures and Swaps. 5.4 Hedging using derivatives 6.0 MARKET EFFICIENCY HYPOTHESES4hours 6.1 Concept of an Efficient Market 6.2 Evidence on Market Efficiency 6.3 Implications of efficient market Hypothesis (EMH) 6.3.1 Fundamental Analysts 6.3.2 Technical analysts 7.0 INTERNATIONAL DIVERSIFICATION4hours 7.1 Risk and Return of Foreign Security 7.2 Exchange Rate and Purchasing Power Parity Theory 7.3 Hedging Exchange Rate Risk 8.0 PORTFOLIO MANAGEMENT4hours 8.1 Passive Portfolio Management 8.1.1 Index Fund Construction Technique 8.1.2 Dollar Cost Averaging 8.2 Active Portfolio Management 9.0 INVESTMENT DECISION8hours 9.1 Why Cash flows rather than Profits? 9.2 Relevant cash flows for investment Purposes 9.3 The use of the DCF analysis 9.3.1 The NPV approach 9.3.2 The IRR approach 9.4 Taxation in investment appraisal

9.5 Inflation and project evaluation 9.6 Risk analysis in capital budgeting decisions 9.7 International capital budgeting

READING LIST: ACCA (2001) Strategic Financial Management Foulks Lynch ACCA (2004) Strategic Financial Management Foulks Lynch Bodies, Z, Kane, & Marcus, A.J. (2001) Investment, McGraw-Hill Inc. Boston Bodies, Z. Kane, A, Marcus, A. Perrakis, S., & Ryan, P. (2005) Investments, 5th Canadian edition, McGraw-Hill Ryerson. Campbell, J (2000) Asset pricing at the Millennium; Journal of finance, Vol.55, PP 1515-1567. Elton, E.J. & Gruber, M.J (1995); Modern Portfolio Theory and Investment Analysis. John Wiley and sons, Inc. New York. Fama, E.F. & French, K.R. (2004); The capital asset pricing Model: Theory and evidence, Journal of Economic Perspectives, Vol. 18, PP 25-46. Francis, J.C (1991); Investments Analysis and Management, McGraw-Hill, Inc. New York. Levy, H. & Post, T. (2005) Investments. Pearson Education Limited Malkiel, B.B. (2007) A Random Walk Down Wall Street; 9th edition, W.W. Norton and Company. Radcliff, R.C. (1994); Investment; concepts. Analysis and Strategy. Harper. Collins College Publishers. Reilly, F.K. & Keith, C.B. (2006); Investment Analysis and portfolio Management 8th edition, Thomson South-Western.