Australian School of Business School of Banking and Finance

FINS 2624 Portfolio Management

Course Outline Semester 1, 2012

Part A: Course-Specific Information Part B: Key Policies, Student Responsibilities and Support

Table of Contents
PART A: COURSE-SPECIFIC INFORMATION 1 2 2.1 2.2 2.3 2.4 2.5 3 STAFF CONTACT DETAILS COURSE DETAILS Teaching Times and Locations Units of Credit Summary of Course Course Aims and Relationship to Other Courses Student Learning Outcomes LEARNING AND TEACHING ACTIVITIES 1 1 1 1 1 1 2 2 3 3 4 4 4 5 6 7 7 8 1 1 1 1 1 2 2 2 2 4

3.1 Approach to Learning and Teaching in the Course 3.2 Learning Activities and Teaching Strategies 4 ASSESSMENT 4.1 Formal Requirements 4.2 Assessment Details 4.3 Late Submission 5 6 7 1 2 2.1 2.2 2.3 2.4 2.5 3 4 COURSE RESOURCES COURSE EVALUATION AND DEVELOPMENT COURSE SCHEDULE ACADEMIC HONESTY AND PLAGIARISM STUDENT RESPONSIBILITIES AND CONDUCT Workload Attendance General Conduct and Behaviour Occupational Health and Safety KeepingInformed SPECIAL CONSIDERATION AND SUPPLEMENTARY EXAMINATIONS STUDENT RESOURCES AND SUPPORT

PART B: KEY POLICIES, STUDENT RESPONSIBILITIES AND SUPPORT

PART A: COURSE-SPECIFIC INFORMATION 1 STAFF CONTACT DETAILS

Lecturer-in-charge: Joakim Bang Room 311 Phone No: 9385 55484 Mobile: 04 0870 7830 (please keep it roughly within office hours) Email: [email protected] Consultation Times Tuesdays 3.30 to 5.30(or by appointment) Other lecturers:Sidharth Sahgal Room 304C Email: [email protected] A full list of tutors will be posted on Course Website.

2 COURSE DETAILS
2.1 Teaching Times and Locations
Lectures start in Week 1(to Week 12): The Time and Location are:
Stream 1 Stream 2 Stream 3 Tues Tues Wed 13:00 18:00 13:00 15:00 20:00 15:00 Rex Vowels Theatre Keith Burrows Theatre Rex Vowels Theatre

Tutorials start in Week 2 (to Week 13). A full list of tutorials, times and tutors will be on the Course Website.

2.2

Units of Credit

The course is worth 6 units of credit. There is no parallel teaching in this course.

2.3

Summary of Course

Investment theories are introduced with an equal emphasis on theory and practice. The Markowitz model and the CAPM are studied and applied to design portfolios, price and manage risk, evaluate performance, identify mispriced assets, and estimate asset betas. The pricing of stocks, bonds, and options; the theories of the term structure; the duration concept; and the strategic use of options for hedging and investment are also studied.

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2.4

Course Aims and Relationship to Other Courses

This course will introduce you to the concept of diversification, which is a key element in portfolio design. We'll study and apply the Markowitz portfolio theory, CAPM, and efficient market hypothesis to design portfolios, to identify under- and over-valued securities, to measure price and manage risk and to evaluate investment performance. We'll discuss the pricing of bonds and stock option. You'll learn how to manage a bond portfolio and formulate option trading strategies to improve investment performance. Portfolio Management is one of four core courses in finance. This course extends and applies knowledge in financial mathematics acquired from FINS1613 and/or ECON 1202 to price stocks, bonds and stock options; portfolio theory from FINS1613 to rank and select portfolios; linear programming and calculus from ECON 1202 to determine the composition and attributes of a portfolio; frequency distribution, measures of central tendency, mean and dispersion, the normal distribution, point estimation of population parameters and confidence intervals from ECON 1203 to understand investment risk, expected return and the Black-Scholes option pricing model; hypothesis testing, tdistributions, and bivariate regression from ECON1203 to study the CAPM. This course also covers the assumed knowledge required by finance courses in the area of fund management: FINS3640 and FINS3641; real estate finance: FINS3633; risk management: FINS3631, FINS3635 and FINS3636; and honours program: FINS3775.

2.5

Student Learning Outcomes

By the end of this course, you should be able to: 1. Apply the empirical findings on the efficient market hypothesis to design investment strategies. 2. Apply the portfolio theory to rank and select portfolios; the CAPM to measure and price risk, explain the popularity of index funds, separate market risk from firm-specific risk, and identify mispriced securities; the theories of the term structure and the concept of duration to explain the choice of bonds. 3. Compute the price of Commonwealth government bonds. 4. Derive the linear relationship between risk and expected returns. 5. Evaluate and compare the performances of managed funds. 6. Identify violations of a no arbitrage equilibrium and outline a trading strategy to exploit it. 7. Apply option strategies to achieve a risk-return profile to suit some given market condition. 8. Use Excel to solve portfolio problems proficiently and creatively. 9. Demonstrate your communication, teamwork and leadership skills through class discussions and assignments.

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ASB Graduate Attributes This course contributes to your development of the following Australian School of Business Graduate Attributes, which are the qualities, skills and understandings we want you to have by the completion of your degree:

Learning Outcomes

ASB Graduate Attributes

1-8 9 9 1, 9 1-8 1-9

1. 2. 3. 4. 5.

Critical thinking and problem solving Communication Teamwork and leadership Social, ethical and global perspectives In-depth engagement with relevant disciplinary knowledge 6. Professional skills

To see how the ASB Graduate Attributes relate to the UNSW Graduate Attributes, refer to the ASB website (Learning and Teaching >Graduate Attributes).

3 LEARNING AND TEACHING ACTIVITIES

3.1 Approach to Learning and Teaching in the Course

The philosophy underpinning this course is best summarized by the following list of guidelines extracted from Guidelines on Learning that inform teaching at UNSW: http://www.guidelinesonlearning.unsw.edu.au/guidelinesHome.cfm 1. Effective learning is supported when students are actively engaged in the learning process. 6. Students become more engaged in the learning process if they can see the relevance of their studies to professional, disciplinary and/or personal contexts. 10. Clearly articulated expectations, goals, learning outcomes, and course requirements increase student motivation and improve learning. 15. Effective learning is facilitated by assessment practices and other student learning activities that are designed to support the achievement of desired learning outcomes. 16. Meaningful and timely feedback to students improves learning We believe that a disciplined approach to learning is important for effective learning. Students should engage in the learning process through regular class attendance, and regular staff or peer consultation to resolve any learning issues. We also believe that a well-organized and structured course is important for effective learning and teaching. Besides designing a coherent lecture and tutorial program to present and discuss the syllabus, we'll use actual examples and research findings in lectures to demonstrate the relevance of the subject to the finance profession and give students a variety of questions to practice and apply concepts.

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The teaching strategies and assessments that we formulate below are due entirely to the learning outcomes and philosophy underpinning this course.

3.2

Learning Activities and Teaching Strategies

In lectures, we introduce you to investment theories and securities pricing. Whenever a finance theory is discussed we give it a thorough theoretical motivation, explain its merits and applications, and use practical examples to relate the theory to the real world. We believe that this logical sequence of discussion can help you assimilate knowledge due to understanding rather than memorization. To gain deeper understanding of the materials taught, you need to revise the lesson soon after each lecture by studying the lecture slides, the notes you took in class, and the prescribed readings. In addition to the face to face mode of consultation with the tutors and the lecturers, we will open a discussion forum at the end of each lecture week for students to post questions and seek peer assistance. By sharing the questions and responses in the forum, the discussion forum should benefit the whole class and is the preferred mode of electronic communication. The tutorial and revision questions (see section 10) are used to help you improve your critical thinking and problem solving skills, and to prepare you for the assignment and examination. Learning will not be completed without feedback. The tutorial questionswill be discussed formally in tutorials. We value and will reward your active participation to ask and answer questions. The tutor will correct any misunderstandings and help you understand the approach we use to solve the problem. For the revision questions the answers are available from a separately sold solutions manual. When you attempt the weekly online quizzes you will receive the correct answer whenever a mistake is made. The tutors will monitor and participate in the discussion forum during their consultation times to complement the peer assistance. We will post on Blackboard the tutorial solutions at the end of each tutorial week, and feedback on the assignment within 3 weeks of the (last) administration or submission date for you to gauge your performance.

4 ASSESSMENT
4.1 Formal Requirements

In order to pass this course, you must: achieve a composite mark of at least 50; and make a satisfactory attempt at all assessment tasks (see below).

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4.2

Assessment Details

Assessment Task Class participation Online Quiz Midterm Assignment Final Exam

Weighting

5 22 27 10 36

Learning Outcomes assessed 1-9 1-9 3 2, 8, 9 1-8

ASB Graduate Attributes assessed 1, 2, 5, 6 1, 4 - 6 1, 5, 6 1, 2, 3, 5, 6 1, 4 - 6

Length

Due Date

N/A N/A 2 hours N/A 3 hours

Weekly as per tutorial enrolment Fridays Week 6 Due 9 a.m. April 16 UNSW Final exam period

Class participation - Students must go to their enrolled tutorial classes (as per myUNSW) for attendance keeping. Students are expected to be prepared for the tutorials, participate actively in tutorial discussion, and show respect to their classmates and the tutor by arriving on time, paying attention, and staying for the entire duration of the tutorial. Five marks are allocated to the tutorials on the basis of participation. Attendance to the lectures is recommended but not mandatory. However, if you choose to attend a lecture, it is your responsibility to arrive on time and not to disrupt the class by talking with your friends (although you are obviously encouraged to ask questions). There are twelve tutorials all together. We understand that from time to time, students may miss, be late or not stay for a class or two due to sickness and/or other reasons. However, persistent absence, late arrival and/or early departure are unacceptable. The tutor will (within reason) start deducting 0.5 marks per class from the tutorial mark upon the 3rd strike and beyond until the tutorial mark reaches zero. We have zero tolerance to unruly and disruptive behaviour. The tutor will not award any tutorial marks to unruly or disruptive students. Students that disrupt a lecture may be asked to leave and suffer deductions from their participation marks. On-line quizzes are interactive online learning activities where questions are randomly selected from a test-bank. We use the online quizzes to encourage timely revision and engage student learning. There is one online quiz for each lecture. Each online quiz is worth two marks and has ten questions (mainly multiple-choice) of equal weighting. Each quiz attempt must be completed within two hours. There are eleven online quizzes all together and it is possible to achieve a maximum of twenty-two marks. The online quizzes will open to student access progressively via Blackboard every Friday commencing week 1 to test your knowledge of the lecture given the previous week. You are expected to have completed the quiz within two weeks. Students frequently ask for extensions to these deadlines for various reasons. In the interest of fairness every student will automatically be granted an extension of one week to each online quiz, and the quizzes will stay online for three weeks each. Further extensions will only be granted with a doctor's notice explaining the student's inability to complete the quiz in all three weeks.

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You are allowed three attempts for each online quiz. The highest mark achieved from each online quiz is selected for grading purposes. After completing an online quiz, you must click "submit" before exiting the online quiz to ensure that the answers are processed and marked by Blackboard. Otherwise, you will not receive any marks. The marks of the online quizzes will be posted on "My grades" in Blackboard in due course. Midterm - In weeks 6 there will be a written midterm exam worth 30 marks.The midterm will cover all material covered up to and including week 5. Assignment - We use the assignment to assess your knowledge of portfolio theory. Specifically, we want you to conduct portfolio analysis and selection. We will post the assignment on Blackboard in due course. Students may attempt the assignment individually, but are encouraged to form teams with no more than three members. For teamwork, the team members must be enrolled in the same tutorial class. Students who have formed a team but later move to a different class prior to submission are deemed to have withdrawn from the original team and must either join a new team or attempt the assignment individually. The assignment is due 9 a.m. April 16. Only one submission is required per team. By submission is meant 1. a hard copy of the assignment in person to the tutor in that class, and 2. the excel file that generates the reults presented in the assignment by UNSW z-mail to the tutor before the tutorial begins. The email should contain the day and time of the tutorial class, and the names and student ID numbers of all team members. Final exam - The final exam is based on all the materials discussed in the lectures, including the first five weeks. However, the emphasis of the exam will be on the material covered from week six onwards, i.e. the material that was not covered by the midterm exam. We will not specify the questions in advance. You must observe the exam rules and regulations set by the university. Students who are absent from the final exam may apply for special consideration (see section 8.3).

4.3

Late Submission

There is ample time to complete the assignment. Late submissions will attract a penalty of 25% of the marks allocated to the assignment per calendar day. For the online quizzes, late attempts will not be accepted. Quality Assurance The ASB is actively monitoring student learning and quality of the student experience in all its programs.A random selection of completed assessment tasks may be used for quality assurance, such as to determine the extent to which program learning goals are being achieved. The information is required for accreditation purposes, and aggregated findings will be used to inform changes aimed at improving the quality of ASB programs. All material used for such processes will be treated as confidential and will not be related to course grades.
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5 COURSE RESOURCES
The basic textbook for this course is: Bodie, Z., A. Kane and A. Marcus, 2010, Investments, 9th edition, Irwin McGraw-Hill Note: Students that will not take further courses in finance may find it cheaper to buy the custom version ofBodie et al (2010) called FINS2624 - Portfolio Management available at the book shop. This book contains only the prescribed chapters in Bodie et al (2010). Students planning to take further finance courses are recommended to by the full book for reference. If you are planning to do revision questions in Bodie et al and would like to check your answers the following book is helpful: Racculia, N., 2010, Student Solutions Manual for Investments (9th edition), McGraw-Hill (optional)

Students are expected to log in to the course website on blackboard regularly to complete the online quizzes, read course announcements and participate in the discussion board.

6 COURSE EVALUATION AND DEVELOPMENT

Each year feedback is sought from students about the courses offered in the School and continual improvements are made based on this feedback. In this course, we will seek your feedback through UNSW's Course and Teaching Evaluation and Improvement (CATEI) Process. We take this feedback very seriously.

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7 COURSE SCHEDULE
Lecture Schedule Lectures start in Week 1and finish in Week 12.

Week
Week 1 27 Feb Week 2 5 March Week 3 12 March Week 4 19 March Week 5 26 March Week 6 2 April

LECTURE SCHEDULE Topic

Introduction to bond pricing Term structure of interest rates Duration Markowitz portfolio theory Optimal portfolios Midterm

Reference
Course outline, BKM 14 BKM 15

BKM 16 BKM 6 BKM 7

Mid-Session Break: Week 9-13 April

Week 7 16 April Week 8 23 April Week 9 30 April Week 10 7 May Week 11 14 May Week 12 21 May Week 13 28 May
CAPM Factor models and behavioural finance Efficient market hypothesis Performance measures Option strategies BKM 8, BKM 9 BKM 10, BKM 12 BKM 11 BKM 24 BKM 20 BKM 21

Black-Scholes

NO LECTURES

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Tutorial Schedule Tutorials start in Week 2 and finish in Week 13.

Week
Week 1 27 Feb Week 2 5 March Week 3 12 March Week 4 19 March Week 5 26 March Week 6 2 April

TUTORIAL SCHEDULE Topic/Assignments

NO TUTORIALS
Online quiz (OQ) 1; Bond pricing OQ 2; Term structure of interest rates OQ 3; Duration OQ 4; Markowitz portfolio theory OQ 5; Optimal portfolios; Midterm

Reference

BKM 14: 3-5, 8, 9, 13, 16, 17, 23, 31a BKM15: 1-3, 7, 11, 13, 14, 18, 19 BKM16: 1-4, 9, 12, 14, 15, 23 BKM 6: 1-4, 6, 7, 13, 21, 27, 28 BKM 7: 1, 2, 4, 2, 9, 12, 13, 16-19

Mid-Session Break: Week 9-13 April

Week 7 16 April Week 8 23 April Week 9 30 April Week 10 7 May Week 11 14 May Week 12 21 May Week 13 28 May
Assignment OQ 6; CAPM OQ 7; Factor models and behavioural finance OQ 8; Efficient market hypothesis OQ 9;Performance measures

TBA TBA TBA TBA TBA TBA

OQ 10; Option strategies OQ 11; Black-Scholes

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PART B: KEY POLICIES, STUDENT RESPONSIBILITIES AND SUPPORT 1 ACADEMIC HONESTY AND PLAGIARISM
The University regards plagiarism as a form of academic misconduct, and has very strict rules regarding plagiarism. For UNSW policies, penalties, and information to help you avoid plagiarism see: http://www.lc.unsw.edu.au/plagiarism/index.html as well as the guidelines in the online ELISE and ELISE Plus tutorials for all new UNSW students: http://info.library.unsw.edu.au/skills/tutorials/InfoSkills/index.htm. To see if you understand plagiarism, do this short quiz: http://www.lc.unsw.edu.au/plagiarism/plagquiz.html For information on how to acknowledge your sources and reference correctly, see: http://www.lc.unsw.edu.au/onlib/ref.html

For the ASB Harvard Referencing Guide, see ASB Referencing and Plagiarism webpage (ASB >Learning and Teaching>Student services>Referencing and plagiarism)

2 STUDENT RESPONSIBILITIES AND CONDUCT

Information and policies on these topics can be found in the A-Z Student Guide: https://my.unsw.edu.au/student/atoz/A.html. See, especially, information on Attendance and Absence, Academic Misconduct, Assessment Information, Examinations, Student Responsibilities, Workload and policies such as Occupational Health and Safety.

2.1

Workload

It is expected that you will spend at least ten hours per week studying this course. This time should be made up of reading, research, working on exercises and problems, and attending classes. In periods where you need to complete assignments or prepare for examinations, the workload may be greater. Over-commitment has been a cause of failure for many students. You should take the required workload into account when planning how to balance study with employment and other activities.

2.2

Attendance

Your regular and punctual attendance at lectures and seminars is expected in this course. University regulations indicate that if students attend less than 80% of scheduled classes they may be refused final assessment.

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2.3

General Conduct and Behaviour

Since lecture groups are large, it is important that every student behaves in a manner that shows respect for the rest of the group. At a minimum this includes to show up on time for lectures and not to talk in class. If you nevertheless do show up late, please find a seat quietly and do not slam the door. If you disrupt the class by talking you may be asked to leave. You are expected to conduct yourself with consideration and respect for the needs of your fellow students and teaching staff. Conduct which unduly disrupts or interferes with a class, such as ringing or talking on mobile phones, is not acceptable and students may be asked to leave the class. More information on student conduct is available at: https://my.unsw.edu.au/student/atoz/BehaviourOfStudents.html

2.4

Occupational Health and Safety

UNSW Policy requires each person to work safely and responsibly, in order to avoid personal injury and to protect the safety of others. For more information, see http://www.ohs.unsw.edu.au/.

2.5

KeepingInformed

You should take note of all announcements made in lectures, tutorials or on the course web site. From time to time, the University will send important announcements to your university e-mail address without providing you with a paper copy. You will be deemed to have received this information. It is also your responsibility to keep the University informed of all changes to your contact details.

3 SPECIAL CONSIDERATION AND SUPPLEMENTARY EXAMINATIONS

You must submit all assignments and attend all examinations scheduled for your course. You should seek assistance early if you suffer illness or misadventure which affects your course progress. General Information on Special Consideration: 1. All applications for special consideration must be lodged online through myUNSW within 3 working days of the assessment (Log into myUNSW and go to My Student Profile tab > My Student Services channel > Online Services > Special Consideration). Then submit the originals or certified copies of your completed Professional Authority form (pdf - download here) and other supporting documentation to Student Central. For more information, please study carefully the instructions and conditions at: https://my.unsw.edu.au/student/academiclife/StudentCentralKensington.html.

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2. Please note that documentation may be checked for authenticity and the submission of false documentation will be treated as academic misconduct. The School may ask to see the original or certified copy. 3. Applications will not be accepted by teaching staff. The lecturer-in-charge will be automatically notified when you lodged an online application for special consideration. 4. Decisions and recommendations are only made by lecturers-in-charge, not by tutors. 5. Applying for special consideration does not automatically mean that you will be granted a supplementary exam or other concession. 6. Special consideration requests do not allow lecturers-in-charge to award students additional marks.

ASB Policy on requests for Special Consideration for Final Exams in Undergraduate Courses: The policy of the School of Banking and Financeis that the lecturer-in-charge will need to be satisfied on each of the following before supporting a request for special consideration: 1. Does the medical certificate contain all relevant information? For a medical certificate to be accepted, the degree of illness, and impact on the student, must be stated by the medical practitioner (severe, moderate, mild). A certificate without this will not be valid. 2. Has the student performed satisfactorily in the other assessment items? Satisfactory performance would require at least making a serious attempt at all evaluation tasksand meeting the obligation to have attended 80% of tutorials. 3. Does the student have a history of previous applications for special consideration? A history of previous applications may preclude a student from being granted special consideration. Special Consideration and the Final Exam: Applications for special consideration in relation to the final exam are considered by an ASB Faculty panel to which lecturers-in-charge provide their recommendations for each request. If the Faculty panel grants a special consideration request, this will entitle the student to sit a supplementary examination. No other form of consideration will be granted. The following procedures will apply: 1. Supplementary exams will be scheduled centrally and will be held approximately two weeks after the formal examination period. The dates for ASB supplementary exams for Session 1, 2012 are: 10 July 2012 exams for the School of Accounting 11 July 2012 exams for all Schools other than Accounting and Economics 12 July 2012 exams for the School of Economics If a student lodges a special consideration for the final exam, they are stating they will be available on the above dates. Supplementary exams will not be held at any other time. 2. Where a student is granted a supplementary examination as a result of a request for special consideration, the students original exam (if completed) will be ignored and only the mark achieved in the supplementary examination

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will count towards the final grade. Failure to attend the supplementary exam will not entitle the student to have the original exam paper marked and may result in a zero mark for the final exam. If you attend the regular final exam, you are extremely unlikely to be granted a supplementary exam. Hence if you are too ill to perform up to your normal standard in the regular final exam, you are strongly advised not to attend. However, granting of a supplementary exam in such cases is not automatic. You would still need to satisfy the criteria stated above. The ASBs Special Consideration and Supplementary Examination Policy and Procedures for Final Exams for Undergraduate Courses is available at: http://www.asb.unsw.edu.au/currentstudents/resources/forms/Documents/supplementa ryexamprocedures.pdf.

4 STUDENT RESOURCES AND SUPPORT

The University and the ASB provide a wide range of support services for students, including: ASB Education Development Unit(EDU)(www.business.unsw.edu.au/edu) Academic writing, study skills and maths support specifically for ASB students. Services include workshops, online and printed resources, and individual consultations. EDU Office: Room GO7, Ground Floor, ASB Building (opposite Student Centre); Ph: 9385 5584; Email: [email protected] Blackboard eLearning Support: For online help using Blackboard, follow the links from www.elearning.unsw.edu.au to UNSW Blackboard Support / Support for Students. For technical support, email: [email protected]; ph: 9385 1333 UNSW Learning Centre (www.lc.unsw.edu.au ) Academic skills support services, including workshops and resources, for all UNSW students. See website for details. Library training and search support services:http://info.library.unsw.edu.au/web/services/services.html IT Service Centre: Technical supportfor problems logging in to websites, downloading documents etc. https://www.it.unsw.edu.au/students/index.html UNSW Library Annexe (Ground floor) UNSW Counselling and Psychological Services (http://www.counselling.unsw.edu.au) Free, confidential service for problems of a personal or academic nature; and workshops on study issues such as Coping With Stress and Procrastination. Office: Level 2, Quadrangle East Wing; Ph: 9385 5418 Student Equity & Disabilities Unit (http://www.studentequity.unsw.edu.au) Advice regarding equity and diversity issues, and support for students who have a disability or disadvantage that interferes with their learning. Office: Ground Floor, John Goodsell Building; Ph: 9385 4734

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