Introductory Lecture

Course Code: MBF 702Investment Analysis & Portfolio ManagementContent2IntroductionName: Muhammad Waqas Saghir

Qualification: Chartered Accountant and Associate Public Accountant

Member: Institute of Chartered Accountants of Pakistan and Pakistan Institute of Public Finance Accountants

Experience: 10 years Professional Experience in Assurance and Business Advisory assignmentsCourse DescriptionThis course begins by describing the investment environment, the various developments in investment theory, and the principles and practices of valuation.

The analyses of fixed-income securities, equity securities, derivative securities, together with other securities such as unit trusts, will then be discussed.

The theories, principles, and techniques of portfolio management will be presented. Course Scope Investment analysisThe course is designed to provide students a thorough overview of financial markets. Students will be able to understand fundamental and technical analysis and to implement it in practical scenario.

It will help to perform economy, market and sector analysis for making wise investment decisions. Students will know how to perform company analysis to support investment decisions.

The course provides an overview and analysis of key modern valuation methods.

The course starts with a brief introduction and discussion of fundamental definitions. Then, we discuss the uses of and general approaches to valuation. The core of the course contains valuation methods applied by financial institutions nowadays such as methods based on multiples, discounted cash flows, and others. Please note that only those methods actually applied in modern practice are going to be presented.Course Scope Portfolio ManagementThe objective of this course is to provide students with an overview of the key elements involved in the construction and management of portfolios. After providing a review of the risk-return relationship of financial assets and a discussion of the objectives of constructing different types of portfolios, we proceed to examine how various securities should be combined to form portfolios that meet these objectives. We also review the characteristics of derivative securities, and look into how they can be used to manage and protect portfolios.

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.

COURSE GOALS AND OBJECTIVES:

Students will be able to:

Explain and apply basic concepts of investment analysisAnalyze and interpret financial dataDemonstrate knowledge of investment management

The goal of this course is for each student to develop a thorough understanding of investments. The requirements for this course provide the opportunity to learn how to make rational investment decisions.

COURSE GOALS AND OBJECTIVES:

The specific objectives of this course are

Describe the current investment environment (domestic & international)Obtain & interpret investment information from various sources (both traditional & electronic)Analyze the various investment vehicles such as:Common stockFixed income securitiesDerivative securitiesMutual funds and exchange traded funds, ETFsRelate financial theories of valuation (risk & return), portfolio management and efficient markets to current market conditions.

Course Learning outcomesCourse Learning outcomes Investment AnalysisExplain the choice of alternative firm valuation models and alternative approaches to arrive at the inputs required by a given firm valuation model.Analyze the financial statements of a firm to collect, compute and/or estimate the inputs required by a firm valuation model.Apply discounted cash flow models and relative valuation multiples to arrive at the fair value of a firm and make a trade recommendation ((buy/hold/sell)) on the stock.Research relevant databases to look for firm-specific, industry-specific and/or market- specific information that may support judgment on a firms financial health, effectiveness of management, competitiveness, value and growth potential.Communicate security valuation analysis and trade recommendation by a professionally written report and an oral presentation.Collaborate with classmates to share and discuss the work required by the shortquizzes conducted in lectures and/or the firm valuation assignment.Course Learning outcomes Portfolio ManagementApply the empirical findings on the efficient market hypothesis to design investment strategies. 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. Derive the linear relationship between risk and expected returns. Evaluate and compare the performances of managed funds. Identify violations of a no arbitrage equilibrium and outline a trading strategy to exploit it. Apply option strategies to achieve a risk-return profile to suit some given market condition. Use Excel to solve portfolio problems proficiently and creatively. Demonstrate your communication, teamwork and leadership skills through class discussions and assignments.

Course FAQsReference and Text Books DetailsInvestment Analysis and Portfolio Management by Frank K. Reilly & keith C. Brown 10th /13th Edition

Investment Analysis and Portfolio Management byPrasanna Chandra

Investment Analysis And Portfolio Management by Jerome Bernard Cohen,Edward D. Zinbarg,Arthur Zeikel

Websiteshttp://reilly.swcollege.comhttp://www.cfapubs.org/loi/faj

Course MethodologyThe instructional format will include

virtual lecture; reading material; Topics Discussions; Assignments; and quizzes to check the level of understanding.Course Outline Investment AnalysisBasic Concepts and definitions Risk. Required Return. Expected Return. Discounting. Present Value.Methods of investment analysisNet Present Value. Sunk costs. Valuation applications. Choice of a valuation method. Decision tree in selection valuation approaches. Dividend Discount Model (DDM). Practical examples of DDM. One-, two, and multi-stage DDMs. Gordon. Model. Assumptions. Advantages and Disadvantages. Multiples Method (P/E, P/BV, EV/EBITDA and others) Comparative methods of valuation. Course Outline Investment AnalysisMost frequently used methods. Advantages and disadvantages of each method. Critique of EBITDA as an approximation of operating cash flows. Practical example Residual Value Method. Description of the method and areas of application. Venture Capital Method. This method can be applied to start-up businesses with no sales or cash flows. It reflects the general approach of venture capitalists to investing. CAPEX Budgeting Methods for CAPEX budgeting (payback, discounted payback, NPV, APV and IRR). Risk Estimation. Estimation of the required rate of return. Mergers & Acquisitions Introduction. Motivation and other related issues, Valuing synergies. Real options and their impact on M&A, Application of valuation methods to M&A activities. Definition and Application of Free Cash Flows (FCFF & FCFE). Free Cash Flow to the Firm (FCFF) and Free Cash Flow to Equity (FCFE).

Course Outline Portfolio ManagementThe Process of Portfolio Management ValuationRisk, Return, and Uncertainty Setting Portfolio Objectives & Investment Policy The Mathematics of Diversification The Capital Markets & Market Efficiency Equity Valuation Tools Security Screening Bond Pricing & Selection Lectures DistributionLectures DistributionLectures DistributionLectures DistributionGRADING

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