SYLLABUS: Foundations of Financial Markets - ECON-AD 302

SYLLABUS: Foundations of Financial Markets - ECON-AD 302 Credit Hours: 4 Lectures: This is a 14-week course with two classes (1hr 15 min each) per week Instructor: Professor Samreen Malik E-mail: [email protected] Office hours: Tuesday (2.00 – 5.00) or by appointment. TA information: TBA REQUIRED TEXT: (BKM) “Essentials of Investments" by Zvi Bodie, Alex Kane, Alan J. Marcus, McGraw Hill, Global edition, 9E. (SM) .Solutions Manual to accompany “Essentials of Investments” , 8th edition RWJ Chapters 4 and 5 of .Essentials of Corporate Finance.by Stephen A. Ross, Randolph W. Wester.eld, Bradford D. Jordan OTHER READINGS: You re highly encouraged to also use the following resources; the Economist, the Financial Times and the Wall Street Journal; for additional articles and readings.

RECOMMENDED READINGS: Textbook: FMF Foundations of Financial Markets and Institutions by Frank J. Fabozzi, Franco Modigliani, Michael G. Ferri NOTE ON COURSE MATERIAL: The course materials will primarily be based on the Text book (relevant chapters). However, as you will see in the outline, project report, presentation and participations during the presentation counts as much as the mid-term exam for the final grade evaluation. The project will be tested on numerous criterions that reflect your understanding of International Economics. For more details of the project, see the document for project detail. PREREQUISITES The prerequisite for this course at NYUAD is Principles of Microeconomics and Statistics for the Social and Behavioral Sciences. COURSE DESCRIPTION This course is an introduction to financial market structures and trading. In particular this course gives an overview of ideas, methods and intuitions that are employed in financial risk management managing risks. Students will be introduced to modern portfolio theory which provides a detailed presentation of the effects of diversification on portfolio risk, the efficient diversification of investor portfolios, the optimal choice of portfolios that strikes a balance between risk and return and the trade-off between risk and expected return. This course will also allow students to analyze simple cash flow problems and compute present values to evaluate risk and return of various assets and portfolios and evaluate financial instruments. With the theory and tools learnt in this course, students will start to understand the present

Samreen Malik

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SYLLABUS: Foundations of Financial Markets - ECON-AD 302 practices in financial institutions as well as analyze how the advancement of information technology and globalization of the world shapes future financial institutions. Note: This class is not aimed to provide practical experience of trading in the financial industry. You should think of this course as merely a first stepping stone in the field of finance that will allow you to understand the basics of the financial markets. ASSESSMENT The grading will be based on three parts: Homework exercises Midterm Exam Project

20% 40% 40%

Homework exercises: There will be 4 homework exercises (First three homework will be regular homework while the fourth one will be the sample midterm), each counting for 5% of the final grade. The due date for each assignment is provided in the mini schedule section of this document. If you miss class, you are responsible for finding out about any important announcements in class and changes in assignments. Failure to attend class is NOT an excuse for turning in assignments late. Late assignments will not be accepted. Exams: There is one midterm (written) exam, which is scheduled on 10th October, 2013. The written section of the project will be due on the last day of class. There is no final exam for this class. Exams are closed-book and other aids, including any notes, electronic or paper dictionaries, should not be used. Cell phones cannot be used as calculators and must be turned off and kept out of sight during all exams. The mid-term will cover all the material covered prior to the mid-term exam day. Project: A detailed outline of the project with the grading scheme is provided separately. Please refer to that document for deadlines and general outline of the project. Grading: Grades A AB+ B BC+ C CD F

Marks 95-100 90-94 85-89 80-84 75-79 70-74 65-69 60-64 50-59 Below 50

Late Homework and Exam Absence Samreen Malik

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SYLLABUS: Foundations of Financial Markets - ECON-AD 302 Late homework will not be accepted under any circumstance. The home works will be online way in advance and therefore no excuse will be accepted for late home works. You must check the NYU class for any due dates regularly. However, the due dates are also provided in the mini schedule. There is no make-up examination for the midterm. If you cannot make it to the midterm due to clashes with other class times or exams, you should not take my class. In case you have booked plane tickets for the Fall break that clashes with the mid-term exam, please do not take this class. Any requests to reschedule the exam will not be entertained. Exception: In extreme cases (personal or medical emergencies, in which case the student must provide a written excuse signed by a doctor, parent, or university official) that presses you to miss the mid-term exam, a make-up midterm will be provided. Re-grading Any homework/exam for which there is a re-grade request must be done within seven days after I return the exam to you. The request for re-grade must be in writing and attached to the exam when submitting the exam for a re-grade. The request must include a description of what the problem is and why you think the exam should be graded differently. PARTICIPATION AND ATTENDANCE POLICIES Participation Students are responsible for attending all class meetings, participating responsibly in class discussions and completing all class assignments. Specifically, students should try their best: i) to come to class on time ii) to refrain from packing up belongings before class ends iii) not to make noises that might create a disruption in class (e.g., keep your cell phone in vibration mode or turn it off) iv) to give attention while either instructor or another student is speaking Code of Conduct Cheating will be taken very seriously. You are responsible to follow all the relevant policies by the University or Faculty/Department. Communication I will be happy to answer questions on the course material by email. Please indicate the course name in the subject line. In case, I feel that email is not the best mode to explain your problem; I will be happy to set a separate appointment so that you may come to discuss the related questions. Occasionally, I will post some of the questions received—with my answer—on the course website. Hopefully, this will be an efficient way to disseminate information. Student identifiers will be removed if I post a question (if you do not want your question posted, just say so in your email.) The outline provided is tentative and subject to change at the instructor’s discretion.

Samreen Malik

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SYLLABUS: Foundations of Financial Markets - ECON-AD 302 COURSE OUTLINE (Subject to changes as we go along and it will be updated with relevant section numbers for each chapter.) Week

Date

Lecture

Topic

CHP

Week 1

27-Aug

Lecture 1

Investments: Background and Issues

BKM 1-3

29-Aug

Lecture 2

Valuation of Assets

RWJ 4

3-Sep

Lecture 3

Compounding and Return Measures

RWJ 5

5-Sep

Lecture 4

Risk and Return

BKM 5

10-Sep

Lecture 5

Risk and Return

BKM 5

12-Sep

Lecture 6

Efficient Diversification

BKM 6

17-Sep

Lecture 7

Efficient Diversification

BKM 6

19-Sep

Lecture 8

CAPM

BKM 7

24-Sep

Lecture 9

CAPM

BKM 7

26-Sep

Lecture 10

CAPM

BKM 7

1-Oct

Lecture 11

Debt Securities

BKM 10

3-Oct

Lecture 12

Debt Securities

BKM 10

8-Oct

Lecture 13

Managing Bond Portfolios

BKM 11

10-Oct

Lecture 14

Mid-term exam

22-Oct

Lecture 15

Equity Valuation

BKM 13

24-Oct

Lecture 16

Equity Valuation

BKM 13

29-Oct

Lecture 17

Financial Statement Analysis

BKM 14

31-Oct

Lecture 18

Financial Statement Analysis

BKM 14

7-Nov

Lecture 19

Derivative Markets

BKM 15

12-Nov

Lecture 20

Derivative Markets

BKM 15

14-Nov

Lecture 21

Option Valuation (if time permits)

BKM 16

19-Nov

Lecture 22

Option Valuation (if time permits)

BKM 16

21-Nov

Lecture 23

BKM 19

26-Nov

Lecture 24

28-Nov

Lecture 25

Globalization and International Investment (if time permits) Presentation: 1 Globalization and International Investment (if time permits) Presentation: 2 Presentation: 3

3-Dec

Lecture 26

Presentation: 4

10-Dec

Lecture 27

Presentation: 5

12-Dec

Lecture 28

Presentation: 6

Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Week 10 Week 11 Week 12

Week 13 Week 14

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SYLLABUS: Foundations of Financial Markets - ECON-AD 302 Date

Lecture

8/27/2013

1

(1) Financial Systems (2) Financial Instruments (3) Classification of Financial Assets

2

(1) Future Value and Compounding (2) Present Value and Discounting (3) PV vs. FV (4) Annuities and Perpetuities (5) Annuity Due

8/29/2013

9/3/2013

3

9/5/2013

4

Mini Schedule

5

6

(1) Diversification and Portfolio Risk (2) Asset Allocation with 2 Risky Assets (a) Covariance and Correlation (b) 3 rules of 2 risky asset problem (c) Risk-return trade-off (d) Mean Variance criterion

9/17/2013

7

(1) Optimal Risky portfolio (2) Efficient diversification (a) Optimal Portfolio (b) Separation (3) Index Model (a) Graphical illustration (b) Single index security line

9/19/2013

8

(1) CAPM (a) Investors and Market Portfolio (b) Risk premium (c ) Expected return (d) Security market line (SML)

9/24/2013

9

(1) CAPM and Index Model (a) Estimating the index model (b) Predicting betas

9/12/2013

Samreen Malik

Assignment/Project Online/Due

(1) EAR (2) APR (3) Loans (a) Pure discount loans (b) Interest loans (c) Amortized loans (1) Rate of Return (a) HPR (b) Arithmetic average (c) Geometric average (d) Dollar weighted return (2) Risk and Return Premium (a) Probability distribution (b) Normal distribution (i) Value at risk (ii) Time series return (c ) Risk premium and risk aversion (d) Sharpe ratio (1) Asset Allocation across risky and risk free portfolio (a) Risky assets (b) Risk free assets (c ) Portfolio expected return and risk (2) Capital Allocation Line (CAL)

9/10/2013

Assignment/Project Online/Due

Assignment 1 Online (5%)

Assignment 1 Due

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SYLLABUS: Foundations of Financial Markets - ECON-AD 302 9/26/2013

10

10/1/2013

11

10/3/2013

12

10/8/2013

13

10/10/2013

14

(1) Multifactor Model (a) Fama and French 3 factor model (2) Factor Model and Arbitrage (a) CAPM and APT (1) Bond Markets (a) Treasury bonds (b) Corporate bonds (c) Preferred stocks (d) Other domestic issues (e) International Issues (f) New Innovative bonds (2) Bond Pricing (a) Discounted model (b) Bond pricing between coupon dates (1) Bond Yield (2) Bond pricing over time (3) Zero bonds (4) After Tax (1) Default Risk (2) Credit Default Swaps (CDS) (3) Duration (4) Convexity Mid Tem Exam (40%) (1) Equity Valuation (a) Intrinsic vs. Market price (b) Dividend discounted model (DDM) (i) Constant growth DDM (1)Stock prices and investment opportunities (2) Lifecycle and Multi stage growth model (3) PE and growth


Assignment 2 Due

Assignment 3: Sample Midterm Due

10/22/2013

15

10/24/2013

16

10/29/2013

17

(1) Financial Statement Analysis (Mini Schedule will follow at a later date)

10/31/2013

18

(1) Financial Statement Analysis (Mini Schedule will follow at a later date)

Project Online

11/7/2013

19

(1) Derivative Markets (Mini Schedule will follow at a later date)

Assignment 4 Due

11/12/2013

20

(1) Derivative Markets (Mini Schedule will follow at a later date)

11/14/2013

21

(1) Option Valuation (If time permits -mini Schedule will follow at a later date)

11/19/2013

22

(1) Option Valuation (If time permits -mini Schedule will follow at a later date)

23

(1) Globalization and International Investment (If time permits - mini Schedule will follow at a later date) (2) Presentation 1 (10%)

11/21/2013

Samreen Malik

Sample Midterm Online (5%)


Attendance and Class Participation (5%)

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SYLLABUS: Foundations of Financial Markets - ECON-AD 302

11/26/2013

24

(1) Globalization and International Investment (If time permits - mini Schedule will follow at a later date) (2) Presentation 2 (10%)

11/28/2013

25

Presentation 3 (10%)


12/3/2013

26



12/10/2013

27


12/12/2013

28


Samreen Malik

Project Report (25%) Due


Attendance and Class Participation (5%) Attendance and Class Participation (5%)

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