01-Course Introduction and Overview of Debt and Equity Securities

01-Course Introduction and Overview of Debt and Equity Securities

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1 1 Course Introduction and Overview of Debt and Equity Securities Bus M 410 Winter 2011 Rob Schonlau ** I would like to thank Prof. Boyer for sharing his Bus M 410 materials. I adapted many of his slides and spreadsheets for use in my class. Last updated Dec 30, 2010 Lecture 1 Outline What topics do we cover in Bus M 410? What are the course expectations? What debt and equity instruments are commonly traded in financial markets? What are stock indices and how are their levels calculated? 2 Some of the important concepts you should remember from Bus M 301 and Stat 121 3 Time value of money formulas Bond valuation IRR/yield to maturity calculations Systematic vs. unsystematic risk Risk-return relation Diversification Standard deviation calculation Mean calculation Confidence intervals Inference from scatterplots Regression If you have forgotten these concepts and the formulas that relate to them be prepared to put forth extra effort to relearn them as we go through the material.
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2 4 Who participates in financial decisions? Consider yourself an asset manager… To set the stage, yesterday 100 of your closest friends heard you were taking Bus M 410 and spontaneously entrusted to you a sum total of $2 million for you to invest. They asked you to invest it in the best possible manner over a 5 year period. You see this as a chance to build your resume as a fund manager and feel obligated due to your friendship to invest the money as best you can. At the end of the 5 years you will need to be able to justify your approach to picking assets. 5 Big picture course questions: - What securities are traded in financial markets? - How do we identify under- and over-performing financial assets? - How do we formalize the relation between risk and return? - How do we objectively measure risk and performance? - Can we predict stock performance? - Given market conditions, what is the “best” way to combine financial assets in a portfolio? I.e. what is the optimal portfolio allocation? This course is from a “front row player” point of view. .. 6
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3 Who are the “front row players”? Examples of financial market participants: Hedge fund managers Pension fund managers Mutual fund managers Wealthy individuals University endowments Average individuals Front row players have millions, if not billions, of dollars under management. 7 Front row players Why might the size of investment matter? Rewards are highest for those managing large portfolios . Example: Suppose research will yield a guaranteed increase in return of 0.1% over the next year Average individual has $10,000 invested $10 increase! Suppose you have $10 billion invested $1 million increase. 8 How can this course help you? For those of you who plan to work with investments this course will provide a foundation for investment ideas and terminology that will help you in your career.
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01-Course Introduction and Overview of Debt and Equity Securities

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