Course Objective

This course provides a comprehensive coverage of the basic concepts, theories, and decision-
making rules for financial investments. Students taking this course should expect to acquire skills
in valuation techniques, the pricing of fixed-income securities, equities, as well as the principles
of finance, including arbitrage, market efficiency, asset pricing models and portfolio theory,
primarily portfolio selection and management on the basis of risk and return. The course will also
provide an introduction to the institutions and the instruments commonly used to raise money.

Pre-requisites
Core Corporate Finance course. There will be no significant overlap, but we will have a refresher
on the principles of corporate finance.
Teaching Material
1. Investments: Reilly Frank K. and Brown Keith C., Investment Analysis and Portfolio
Management, Eighth Edition, Cengage Learning, New York, 2006.
2. References
a. Modern Portfolio Theory And Investment Analysis, 7
th
Ed, Edwin J. Elton,
Martin J. Gruber, Stephen J. Brown, William N. Goetzmann
b. Frank J. Fabozzi, ed., The Handbook of Fixed Income Securities, 3
rd
Ed.
Readings
1. Does Asset Allocation Policy explain 40, 90 or 100 Percent of Performance
2. What Drives Long term equity Returns (Barra Research)
3. The fundamentals of fundamental factor models (Factor analysis, APT)
4. Indian_Savings and Bond_Market
5. FCFE valuation from Valuations by Aswath Damodaran
6. Technical Analysis Note: Darden publishing
7. Introduction to Valuation Multiples :HBS
8. Are the markets really efficient, Mr.Markowitz : Book extract.
9. NCFM material on capital markets module. (to be downloaded by the students
themselves)
10. RBI extracts.

Cases and general readings

1. The Bernard Madoff Financial Scam
2. Gold as a long term investment Fading glitter?
3. Darden Capital Management the Monticello Fund
4. Investment Management at Harvard management Company- ICMR
5. Does the CAPM work?

Other readings (optional) will be distributed depending on the interest of the class.

Class Preparation:
It is expected that students will come prepared to class, and material covered in the assigned
textbook readings will generally not be repeated in class. Class time will be devoted to lecture
and case discussion, applying the material covered in the readings.

Course Outline
The course will cover the following topics
1. Utility Theory, Mean Variance Portfolio Theory
2. Single Index Models, Capital Asset Pricing Model, APT, Factor Models
3. Asset Allocation; Portfolio Construction
4. Market Efficiency: Random Walk Theory
5. Equities: Determinants of Value/Industry Analysis and Valuation/Fundamental and
Technical Analysis
6. Fixed Income Security Analysis
7. Performance measurement time weighted, money weighted measures, ratios.
8. Derivatives (more from an investment perspective, knowledge of OFD is assumed)


Grading Pattern
The course grade will be determined as follows:
Midterm 30 % (Date to be informed by Office)
End term 30 % (Date to be informed by Office)
Class Quiz (best 2 of 3) 8% (Surprise Quizzes)
Class Activity (Case CP) 7% (Group activities)
Assignment 15 % (Group homework, dates to be informed in class)
Presentations 10% (Topics will be distributed in the 2nd week)

Mid term dates will be announced by the PGP office it is likely to be in the break between the
9
th
and 11
th
sessions.

Syllabus and Course Schedule

Sessions Topics
1


2


3 and 4


Introduction to terms in investment analysis, institutions in financial markets and
instruments such as bonds, equity, short and medium term instruments of borrowing
etc
Basics of valuation recap of corporate finance basics. Valuation of equity, Valuation
of bonds, calculating yields, FCFE methods

Group team names to be provided .

Utility Theory, Types of utility functions. Characteristics of Utility functions.
Maximization of expected utility, Risk aversion and certainty equivalent. Commonly
used utility functions, coefficient of risk aversion, Insurance
Know your investor questionnaire activity;
Read: Gold fading glitter; Does Asset Allocation explain 40,50 or 90%
Chapter 1, 2, Chapter 3 (section on Global investment options pg 79-90 only) and
appendix 3 on covariance and correlation, chapter 4 pg 125-130 (types of orders
and margin). Chapter 5 (till pg 162 ) types of indices (will be covered in student
presentations)
Additional optional reading from NCFM material on capital markets (will be
covered in student presentations)
5,6

Introduction to Portfolio Theory: Risk and Return. Measures of Risk, measures of
return. Capital Allocation between Risky and Risk Free Asset
Mean Variance efficiency - Markowitz optimal portfolio selection
Trading activity commences; Barra research : the fundamentals of fundamental
factor models
Assignment 1 will be provided on 29
th
Jun. Due 8
th
Jul midnight
Chapter 7
7,8



Introduction to the Capital Asset Pricing Model, Beta of companies, using beta to
value stocks, Single Index and Multifactor Models, other models of stock valuation.
Activity Case Monticello fund; Does the CAPM work
Reading: what drives long term returns
Chapter 8, 9
9,10


Efficient markets hypothesis, Portfolio Strategy and Asset Allocation; Fundamental
and technical analysis
Technical Analysis note; Valuation by damodaran; Valuation multiples note;
Discussion: Are markets really efficient Mr.Markowitz
Chapter 6 (recap), 10-15 (review of FSA), 16
Mid Term Exams
11,12 Portfolio performance evaluation, measures to evaluate portfolios
Mutual Fund performance case Harvard Management Company;
Assignment 2 will be provided on 14
th
Jul. Due 5
th
Aug midnight.
Chapter 17,26
13,14, 15, 16 Fixed Income Security valuation; valuation of bonds, yields, running yield, YTM
Term Structure of Interest rates.
Bond valuation: advanced topics such as Duration, Immunization, etc.
Assignment 3 will be provided on 10
th
Aug, due 24
th
Aug midnight.
Chapter 17,18,19,20
17,18


19,20
Project Analysis presentations
Derivatives, hedging and Wrap up
Chapter 21,22
Hedging activity
Trading activity ends: portfolios to be submitted by 25
th
Aug midnight.