Part Six
Derivative Securities
Part Six Includes
Chapter 14
Options: Puts and Calls
Chapter 15
Commodities and Financial Futures
Chapter 14
Options: Puts and Calls
Outline
Learning Goals
I.
Put and Call Options
A. Basic Features and Behavioral Characteri
Part Three
Investing in Common Stocks
Part Three Includes
Chapter 6
Common Stocks
Chapter 7
Analyzing Common Stocks
Chapter 8
Stock Valuation
Chapter 9
Technical Analysis, Market Efficiency, and Behavioral Finance
Chapter 6
Common Stocks
Outline
Learning
Chapter 7
Analyzing Common Stocks
Outline
Learning Goals
I.
Security Analysis
A. Principles of Security Analysis
1. The Top-Down Approach to Security Analysis
B. Who Needs Security Analysis in an Efficient Market?
Concepts in Review
II.
Economic Analysis
Chapter 15
Commodities and Financial Futures
Outline
Learning Goals
I.
The Futures Market
A. Market Structure
1. Futures Contracts
2. Options versus Futures Contracts
3. Major Exchanges
B. Trading in the Futures Market
1. Trading Mechanics
2. Margin Trad
Chapter 12 Mutual Funds What you need to know.
What They Are
The Math
Open or closed ended
Total Return
Compounded Rate of
Return
ETFs ( discuss more later)
Unit Inv Trust
Realized and unrealized
gains/losses
REIT
Hedge Funds
Load vs No Load
Types:
Growth
CH 13: PORTFOLIO MANAGEMENT
Building portfolios
What are you trying to accomplish?
Different investor profiles
Comparison groups to measure success
Average Annual Returns 1926 2003
Arithmetic
Average
Geometric
Average
Standard
Deviation
Small
Stocks
Cap
1
CH 14 OPTIONS
Example: You own 400 shares of ABC which is currently trading at $27.50. This stock has been
as high as $53.00 in the past year. You can buy put options with a strike price of $27.50 that
expire in 6 months. These cost $2.95 or a total of $1
CH 15 COMMODITIES AND FUTURES
What is a futures contract?
How the market works
2 parties:
1.
2.
Farmer and baker example
Profit and loss / Cash settlement
Daily adjustments to accounts
Commodity is actually sold in the cash market.
The players
Hedgers: Go
Final Exam ( 150 point exam ) Review
Finc 305/MBA 562E
Yield Curve: What are the relationships and what does this tell us?
Currency calculations buy an investment in foreign currency and after a period of time,
calculate how much you made in dollars
Intri
Chapter 8
Stock Valuation
Outline
Learning Goals
I.
Valuation: Obtaining a Standard of Performance
A. Valuing a Company and Its Future
1. Forecasted Sales and Profits
2. Forecasted Dividends and Prices
a. Getting a Handle on the P/E Ratio
b. A Relative P
Ch 12 Homework Answers:
1.
2.
3.
4.
a. 26.47% b. 27.24%
3.12%
20.67% for 5 year, 26% for 3 year and Total Return = 127.8%
3 year: 13.3% Total Return: 53.6%
CHAPTER 8 STOCK VALUATION
Many methods 2 main categories
Dividend Discount Models
Price Ratio Models
3 Distinctions to keep in mind
Fundamental analysis versus technical analysis
Price versus value
Dividend Discount Model Approach
Zero Growth ( Dividend D
COURSE INTRO, CH 1
Basic Financial Assets
Cash reserves
Bonds
Stocks
Key concepts in investment theory
Compound interest
Portfolio Construction
Risk and Return
Efficient Markets
Terms (additional information at investopedia.com)
Financial Assets
Real Asse
HEDGE FUNDS AND REITS
Why invest in a hedge fund?
Diversification Benefits
How returns are skewed.
Who uses hedge funds?
Retail Hedge Funds
Different Vehicles and Different Strategies
Vehicle
o Publicly traded hedge fund or
Private equity firm
o Long Shor
CH 11 BOND VALUATION
What is this bond worth?
20 year, 9.5% bond prices to yield 10%
How to solve?
Note how to handle semiannual compounding
YTM What is it and how do we solve for it?
Current Yield What is it and how do we solve for it?
Yield to Call
Dura
CHAPTER 2
Review types of markets
INTERNATIONAL INVESTING
Additional information sources
Euromoney.com
Roubini.com
GlobalEdge.msu.edu ( note: market potential indicators)
Marketwatch.com
DEVELOPED MARKETS
V ERSUS
EMERGING MKTS
Risk and Return: 1988 2005
U
CH 3 PLUS INFORMATION ON ANALYZING THE YIELD
CURVE
Review Sources of information in text
Exchanges
OTC Markets
NASDAQ
Indexes Whats what and how are they calculated
Averages
Indexes
Price weighted index
Example: Price weighted index with only 3 stocks
If
CHAPTER 4 RISK AND RETURN
Modern Portfolio Theory what does it tell us?
We need to consider risk and return.
Lots of ways to measure return:
Example:
Year I
25%
Year 2
25%
Year 3
-50%
Arithmetic Mean Average Return
Geometric Mean compound annual rate of r
CH 5 MODERN PORTFOLIO CONCEPTS
Portfolio Weights, Expected Return and Beta
Standard Deviation
Correlation
-1
+1
0
Capital Asset Pricing Model
Beta as a measure of risk
CAPM to calculate required return
Modern Portfolio Theory
Diversification is achieved b
CH 6 COMMON STOCKS
What is the market doing?
A look back:
1953 2002
Major sell offs in 10/87 - What happened?
First half of the 90s
Second half of the 90s
Bear Market
2001-2005
Are stocks still a good investment?
How do you make $ in stocks?
Types of risk
CH 7 REVIEW OF THE FUNDAMENTALS HOW
TO ANALYZE STOCKS?
Where to begin Top Down Approach
Asset allocation Driven by economic analysis and industry analysis
To review in your text book:
Industry Growth Cycles
Initial Development
Rapid Expansion
Mature Growt
LAB 4 - FUNDAMENTAL ANALYSIS SCORE CARD
Based on our discussion in class, develop a fundamental analysis scoring system and apply this
to a company that you select. The process should include the following elements:
Key areas: profitability, leverage and