Course Perspective and Objectives

"Investments" is defined as the current commitment of funds for a period of time in order to derive a future flow of funds that will compensate the investor for 1) the opportunity cost of foregoing current consumption, 2) the expected rate of inflation over the holding period, and 3) the risks associated with the future flow of funds.  The purpose of this course is to provide detailed knowledge regarding this general definition.  Specifically we will cover six broad areas of the investment task: 1) the nature and characteristics of financial instruments; 2) how these instruments are traded in efficient financial markets; 2) bond analysis; 3) security (stock) analysis; 4) mutual funds; 5) derivative securities, and, 6)  portfolio management and analysis.

In no other business discipline has theory and real-world practice become so blurred as investments.  This is due to the introduction of new trading instruments, information technology, increased theoretical understanding, and the raw greed, and speculative demands of (most of) the cash-rich investing public and investing units.

Understand at the outset that Finance 4043 is not built on a collection of  rules-of-thumb which purport to tell you "how to invest your money" or what "hot stock" to buy.  If you want that you can go to Barnes & Noble or Borders (and Borders does have good coffee).   While talk is cheap and such rules abound,  no reliable collection of get-rich-quick nostrums exists.  Rather, in order to connect you, the practitioner, with accepted theory we will emphasize a solid grounding in investment principles.  These will allow us to focus on how the real world investment task can be clarified and successfully negotiated with a few well-placed financial concepts.  Rules-of-thumb constraint the investor to act within narrow and possibly unrealistic bands; an understanding of underlying principles, on the other hand, allow the investor to deal with multiple situations in today's changing investment environment.  Our job is not to tell you how to make good investment decisions; rather we aim at exploring why you make an investment decision.  If you understand the "why," you will understand how decisions can turn out wrong so as to avoid faulty thinking in the future.

General Information

Course Prerequisites  FIN 3013, ACC 2043.  GB 3113 (statistics) and some knowledge of micro/macroeconomics will be helpful.

Exams  There will be three exams including the final.  Exams will be problem-oriented in nature.  Exam problems will be similar to those found in the problem set assignments and end-of chapter problems.  The final exam will be selectively comprehensive.  The dates of exams will be announced in class so as to allow ample time for preparation.  Each exam will cover a specified block of material as outlined on the Assignment Outline.

Use of a Calculator  Use of a "business" calculator (e.g., TIBAIIPlus, HP 12C or something similar) will be required for this course including the examinations.  Your calculator should perform NPV and IRR functions.

Spreadsheet Analysis and Software  Many finance applications lend themselves to the use of a personal computer spreadsheet (like Excel).  While knowledge of spreadsheets is not a formal requirement of this course, a rudimentary understanding of spreadsheet mechanics may be helpful on some assignments.  For those assignments I will allow the formation of  two-member teams (one person who knows spreadsheets and one who doesn't).  Team membership will not be mandatory on these assignments.  I also point out that the text comes with a Self-Study CD-ROM that will perform the number crunching necessary to solve bond and (especially) options problems. Also contain on this software is a tutorial of selected test-like questions.  Also available with this text is the Stock-Trak Portfolio Simulation software.  This software allows you to construct and trade your own account in simulation fashion.  While we will not use this software in class, I invite you to use it if you have the time.

Grades and Grading Policy  Grades will be assigned according to the conventional university scale:  90-100 A; 80-89 B; 70-79 C; 60-69 D; 59 and below F.  While I don't formally "curve" grades, some upward adjustment of a final numerical grade may occur at the discretion of the instructor.  Any curving will depend on individual student class participation, attendance, homework submission rate (in addition to homework average), and a discernable upward exam grade trend.  To qualify for any grade curving which may occur, students must meet the Class Participation Policy and Assigned Homework Problems requirement listed below.  Grade computations as a percent of your total numerical grade are as follows:
 
 

First exam	20 percent
Second exam	20 percent
Comprehensive final	20 percent
Homework/Participation	25 percent
Portfolio term paper	15 percent
total	100 percent

Class Participation Policy  I require every student to participate in this course.  Accordingly, class attendance is mandatory and constitutes a large part of your expected participation in the course.  Excessive absences mean you are in non-compliance with the participation policy, a fact which may compromise a final marginal grade. Roll will be taken at each class meeting. Please note that a passing course grade average during the semester is not a substitute for regular class attendance and participation.

Assigned Homework Problems   During the semester I will assign homework problems and questions to be handed in for grading.  Grades on this material will constitute the 25% homework/participation portion of your final numerical grade referred to above.  Failing to turn in assigned homework means you are in non-compliance with the above-stated Class Participation Policy, a fact which could jeopardize your grade in the course as outlined above.   Each homework assignment will be graded on the basis of 100 points.  The 25% homework/participation percentage will be taken from a straight numerical average of all homework grades.  Compliance with the homework requirement includes submitting the portfolio term paper (described below).  While I will attempt to go over the answers to all assigned problem sets in class.  Solutions to all problem sets are in my office and it is the student's responsibility to check his/her answers on assignments.

Ten Points on the Final Exam  I will add ten (10) points to the final exam grade of any student meeting the Class Participation Policy and submitting all Assigned Homework problems (on time).

Reading Assignments   Chapter reading assignments are listed on the Assignment Outline.  Reading the chapter assignment before the lecture will aid in understanding lecture material.  At appropriate points in the course I will try to distribute relevant journal articles pertaining to an investment topic.  You are responsible for these articles on tests.

The Wall Street Journal  It is impossible for a textbook to remain current with the everyday happenings in the financial marketplace.  Accordingly, I think it appropriate that an investments class require each student read the WSJ (particularly the "Money & Investing" section) every day.  While I am not requiring you subscribe to the WSJ for this course, it may be time efficient to do so.  You will absolutely need selected hardcopies of the journal for your portfolio term paper assignment.  See me ASAP for a reduced semester subscription to the WSJ.  I point out that two or more students may share a subscription.  In addition, subscribers get the WSJ Interactive Edition, which is a scaled-down version of the journal provided daily over the internet.  I also recommend you watch CNN for financial news ( or www.cnnfn.com) as well as MoneyLine or Wall Street Week.  Check your local listings for time and station.  Also note that the Tarleton web cite (www.tarleton.edu) has about 20+ excellent financial links you may wish to peruse.

Portfolio Research Term Paper  Your term paper for this course requires you to construct a real-world portfolio using the types of securities we will be studying in this course.  All security data for this project must come from your hardcopy version of the Wall Street Journal.  While I will assign the basic security classes for your portfolio, its particular composition is up to you.  In the next few days I will distribute an instruction sheet for this term research project.  I can say that you should plan to "open" your portfolio no later than Friday Sept 8.  This should give those who wish to subscribe to the Journal time to start receiving hardcopies.   At the end of the semester you will "close out" your portfolio and submit a written report about how your "buy-and-hold" strategy worked.  Your project grade will not be reduced if your lose money!  While this assignment may seem a bit artificial (it's only "play" money), the benefits of having to read and understand the jargon, data, and numbers from the WSJ will be very beneficial.  More on this later.

Advice  Note that investments is a "contact sport."  You must work problems to learn the material and do well on the exams.  Don't wait until test time to discover you don't understand something.  It is most important to practice good time management  this semester.  If you need help, see me.

The Tarleton FMA Chapter  At TSU we have an active student-run Financial Management Association chapter.  We meet once per month.  Our meetings are centered around a guest speaker who discusses some aspect of investments or finance.  These meetings always prove beneficial in that they expose you to some one who makes a living in the finance/investments area.   I am requesting each student in this class to attend these meetings and to join the TSU chapter of the  FMA .  The FMA is a very large national organization and  takes a direct interest in students and their careers.  The FMA can  put you directly in touch with the great career opportunities out there today.

Required Text  Fundamentals of of Investments, 2nd Edition by Carrado and Jordan.  McGraw-Hill Publishers, 2002.  Note your instructor provided the authors with insightful comments on initial and final drafts of this text.

Recommended  A semester subscription to the Wall Street Journal.  See me for a reduced-rate subscription ASAP—like after this class!
 

ASSIGNMENT OUTLINE

I  Institutional and Descriptive Aspects of  the Investing Environment

Chapter 1  A Brief History of Risk and Return
Instructor Notes: Computing Rates of Return
Instructor Notes: Adjusting Return for Inflation & Taxes
Chapter 2   Buying and Selling Securities
Chapter 3  Security Types
Chapter 4  Mutual Funds
 

FIRST EXAM

II Stock Markets

Chapter 5  The Stock Market
Instructor Notes: Economic Analysis for Equity Valuation
Instructor Notes: Industry Analysis for Equity Valuation
Chapter 6  Common Stock Valuation
Chapter 7  Earning & Cash Flow Analysis (optional)
Chapter 8 Stock Price Behavior and Market Efficiency (omit pages 208-216)
 

III Interest Rates and Bond Markets

Chapter 9  Interest Rates
Chapter 10  Bond Prices and Yields
Chapter 11  Corporate Bonds
Chapter 12  Government Bonds
 

SECOND EXAM
 

IV Derivative Securities--Options and Futures

Chapter 14  Stock Options
Chapter 15  Option Valuation (selected topics)
Chapter 16  Futures Contracts

V Portfolio Management, Asset Allocation, and Gauging Portfolio Performance

Chapter 17  Diversification and Asset Allocation
Chapter 18  Return, Risk, and the Security Market Line
Chapter 19  International Finance & Investments (time permitting)
 

FINAL COMPREHENSIVE EXAM

The instructor reserves the right to alter this syllabus due to time constraints.  Please bring your calculator and text to every class.