COURSES
SB/FINE6200 Investments
For course outline, click here.
Student groups
(for the Investment Challenge report)
There should be four members in your group. Group leaders, please submit the following information:
Powerpoint slides (available after each class)
Margin requirements (Regulation 100) http://www.ida.ca/Files/Regulation/RuleBook/RuleBook_en.pdf
TSX Circuit breakers (Q3, 2003) http://www.regulationservices.com/docengines/SearchArticles.asp?Instance=100&Form=1&Attr1=2
TSX Short positions (August 31, 2003) http://www.tse.com/en/mediaNews/newsreleases/news5258.html
IDA Chartbook (June 2003) http://www.ida.ca/Files/IndIssues/PubResearch/SecIndChart/Chartbook_2003_en.pdf
Collusion among NASDAQ dealers http://www.umich.edu/~michje/nasdaq.pdf
Mutual fund fee structure http://www.mackenziefinancial.com/eprise/main/MF/DocLib/Public/MHIF_and_MRRBF_Prospectus_March21_2003E.pdf
Wealth allocation model: http://www.tdcanadatrust.com/mutualfunds/pdf/mut_app.pdf
End-of-chapter questions: 12, 23, 25, 26, 27, 28.
Harry Markowitz, William Sharpe, Nobel prize laureates, 1990 http://www.nobel.se/economics/laureates/1990/
Sample Excel programmes for portfolio selection
End-of-chapter questions: 1-5, 20, 29, 30, 41
Bull and bear markets http://www.andexcharts.com/bear.htm
End-of-chapter questions: 2, 4, 6-12, 24-27
End-of-chapter questions: 1-9
Chapter 14 part a, part b, model research report
Sample of analyst reports: INVESTEXT PLUS (electronic database available through the library)
End-of-chapter questions: all of the CFA questions
Chapter 11 part a, part b + F&F chapter 2
End-of-chapter questions: 2, 4, 6, 13, 24, 30
Example: Treasury Calls
Basic information on U.S. Treasury bills, notes and bonds http://www.publicdebt.treas.gov/sec/sec.htm
End-of-chapter questions: 3, 4, and all of the CFA questions
Yield curve site http://www.waterhouse.com/planning/investment_basics/yield_curve.html
End-of-chapter questions: 6, 8, 22, 24 plus assignment on target-date immunization below
Slide 13-19: Please add 1+ to the denominator of D* (discounting).
The numbers are correct. D = 10.98 years. Semi-annual coupons, i.e., D = 21.96 half years. Modified duration D* in half years = 21.96/1.03 = 21.32. Percentage change in price (using half-year figures) = -21.32 x 0.01 x 100% = 21.32%, which is the same as the percentage change using annual figures (-10.66 x 0.02 x 100% = -21.32%). Key: the terms of D* and yield change have to match.
Broad Investment Grade Analysis of Return (BIGAR) Indices: http://research.cibcwm.com/res/Bnd/BGR_daily_summary.html
FIGURE 1. Spreadsheet Model of Bond Duration - Dynamic Chart*
* Holden, Craig, 2002, Spreadsheet Modelling in the Fundamentals of Investments, Prentice Hall Assignment on target-date immunization: (Answers in blue)
You have to make a single cash payment of $1,000,000 two years from now. You have set aside money for this purpose. In the interim, you plan to invest your money in a bond portfolio. Suppose two types of bonds are available:
- Three-year bonds, with a par value of $1000, a coupon rate of 8% (paid annually) and a market price of $950.25.
- One-year bonds, with the same par value, a coupon rate of 7% (paid annually), and a market price of $972.73.
a. Calculate the yield-to-maturity of each type of bonds. (For both: 10%)
b. Calculate the duration of your cash payment, and the duration of each type of bonds. (D1=1 year, D3=2.78 years)
c. Let w1 and w3 be the weights of the one- and three-year bonds, respectively, in your portfolio. To immunize your portfolio against interest rate risk, what should these weights be? (w1=0.4382, w3=0.5618)
d. Given the above calculations, how much money should you put in your portfolio now? ($826,446)
e. Calculate the quantity of each bond that you need to purchase. (One-year bonds=372, three-year bonds=489)
f. Show that your immunization strategy actually works in each of the following scenarios:
- Interest rate at the beginning of the second year falls to 9%. (Portfolio value should be slightly higher than $1 million - why?)
- Interest rate at the beginning of the second year increases to 11%. (Portfolio value should be slightly higher than $1 million - why?)
For a description of the Security Exchange Commission (SEC) 's Regulation FD (Fair Disclosure), click here.
End-of-chapter questions: all of the CFA questions
You do not need to memorize the following equations (but should know where they come from and be able to discuss them verbally):
Final Examination
Chapter 11
Z-score
Chapter 12
Equation 12.7
Chapter 13
Rules 6-8 for duration
Convexity formula
Equation 13.4 Adjustment with convexity
Equation 13.5 Effective duration
Midterm test
Chapter 6
P.194 Utility function
P.195 Objective function of the utility maximization problem (top of page)
P.203 Weights of the portfolio if rho = -1
P.204 Weights of the minimum variance portfolio
P.211 Weights of the optimal risky portfolio
Chapter 8
P.288 R-square
P.292 Chen, Ross and Roll model, Fama and French model
Sections to exclude:
Chapter 7
P.252 - 255 "Expected returns on individual securities"
Section 7.3 - 7.4
Chapter 8
Sections 8.4 - 8.8
Chapter 20
P.779 M-square measure
