Securities Analysis and Portfolio Management: FIN 423 Chapter Outlines, Study notes of Investment Management and Portfolio Theory

Download Securities Analysis and Portfolio Management: FIN 423 Chapter Outlines and more Study notes Investment Management and Portfolio Theory in PDF only on Docsity! 1 FIN 423: SECURITIES ANALYSIS AND PORTFOLIO MANAGEMENT CHAPTER OUTLINES Chapter 1: The Investment Setting • Investment Defined • Forms of Assets o Financial Assets Direct equity claims (stocks, warrants & options) Indirect equity claims (mutual funds, pension funds etc.) Creditor claims Preferred stock Commodity futures o Real Assets Real estate, precious metals, collectibles, antiques, etc. • The Setting of Investment Objectives o Risk and safety principles Effect of purchasing power Conservative vs. aggressive investors Diversification Risk-aversion effect o Current Income vs. capital appreciation o Liquidity considerations o Short-term vs. long-term orientation o Tax effects o Ease of Management o Retirement and estate planning • Measures of Risk and return • Actual consideration of Required Returns o The real rate o Anticipated inflation factor o Risk premium o Systematic and unsystematic risk Chapter 2: Securities Markets • Market functions o Market efficiency and liquidity o Competition and allocation of capital o Types of Markets for securities Secondary market Primary markets • Organisation of the primary market o The role of investment banker o Offering securities in the primary markets Underwriting Best efforts Direct offerings Private placements Syndication • Organisation of the secondary market o Organised exchange o Securities and exchange commission (SEC) 2 o Consolidated tape o Listing requirements, initial listing and de-listing • Membership for Market Participants o Seats o Commission brokers o Floor brokers o Registered traders o Odd-lot dealers o Specialists • Other important terms o Over-the-counter market (OTC) o Bid-ask spread o Super DOTS o Electronic book • Notable stock markets of the world Chapter 3: Participating in the Market • Measures of price performance • Blue-chip index • Bases of computing market average o Price weighted index o Value weighted index o Equal weighted index • International stock averages • Base year comparison • Bond market indicators • Buying and selling in the market o Opening an account o Cash vs. margin account Cash account Margin account • Initial margin • Minimum maintenance margin • Replenishment rules • Long and short position o Short sales o Margin requirements with short sales o Gains and losses on short sales • Types of orders o Limit order o Stop order o Day order o Good-till-cancelled (GTC) order • Cost of trading • Taxes Chapter 4: Sources of Investment Information • Aggregate economic data • Investment advisory services • Indexes, SEC Fillings & Journals • Computer databases 5 o Certificate of deposits o Commercial papers o Banker’s acceptance o Money market funds o Money market accounts Chapter 12: Principles of Bond Valuation and Investment • Fundamentals of bond valuation process • Rates of return on bonds o Current yield o Yield to maturity (YTM) o Approximate yield • Callable bond and yield to call (YTC) • Anticipated realised yield • Movement f interest rates o Term structure of interest rates o Theories explaining the yield curve Expectation hypothesis Liquidity preference theory Market segmentation theory • Investment strategy: interest rate considerations • Bond price rules • Deep discount vs. par bonds Chapter 13: Duration and Reinvestment Concepts • Bond sensitivity • Effective term of bond o Simple weighted average life o Duration • Duration and price sensitivity • Duration and market rates • Duration and coupon rates • Uses of duration • Bond reinvestment assumptions and terminal value analysis Chapter 14: Convertibles and Warrants • Convertible securities • General strategy for investment in convertibles • Conversion price and conversion ratio • Conversion value • Pure bond value or the floor value • Bond price and premiums • Downside risk • Other variable affecting conversion premium o Stock price volatility o Term to maturity • When to convert into common stock • Advantages of convertibles to issuing firm • Accounting considerations with convertibles • Warrants • Intrinsic value of warrant 6 • Warrant break-even value • Accounting considerations with warrant Chapter 19: Mutual Funds • Mutual funds • Advantages of mutual funds o Diversification o Specialised management help o Availability of investment instruments • Disadvantages of mutual funds o Lower-than-market performance o May often be expensive o Excessive claims by sales people o Problem of selection • Closed vs. open ended funds • Net asset value (NAV) of a closed ended fund • Investing in open-ended funds • Commissions on mutual funds o Load funds Low-load funds Back-end load funds Front-end loads o No-load funds o Calculation of commissions • Differing objectives and diversity of mutual funds o Money market funds o Growth funds Aggressive growth funds Regular growth funds o Growth with income Balanced funds Bond funds Sector funds Foreign funds • Distribution and taxes • Shareholder services o Automatic reinvestment o Safekeeping o Exchange privileges o Pre-authorised check plan o Systematic withdrawal plan o Checking privileges • Computing total return on investment Chapter 20: Investment in Real Assets • Advantages of real asset investment • Disadvantages of real asset investment • Investment in Real Estate o Depreciation effect o Cash flow considerations o Initial cash return o Considering principal repayment o Financing of real estate 7 o Mortgages on real estate Adjustable rate mortgage Graduated payment mortgage Equity participation mortgage Shared appreciation mortgage Second mortgage o Forms of real estate ownership Individual or regular ownership Syndicate or limited partnership Real estate investment trust • Equity trust • Mortgage trust • Hybrid trust • Gold and Silver o Gold Gold bullion Gold coins Gold stocks Gold futures o Silver Silver bullion Silver coins Silver stocks Silver futures • Precious Gems • Diamonds, extremely valuable, why? o Rarity o Market control o Cut o 4 C’s of judging diamonds • Other collectibles o Art objects o Antiques o Postage stamps Chapter 21 (block-Hirt), Chapter 2 & 3 (Brigham-Gapinsky): Risk and Return and Portfolio Management • Return defined • Risk • Using probability distribution to measure expected return • Nature of risk o Stand-alone risk Unsystematic risk or diversifiable risk Systematic, non-diversifiable o Market risk • Analysing stand-alone risk o Variance & standard deviation o Coefficent of variation • Subjective vs. Objective probability distributions • Market risk analysis o Conceptuaisation using the two-asset model • Multiple asset case: the efficiency portfolio • Choosing the optimal portfolio for an individual investor o Finding the feasible/attainable region