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FIN 432Investment Analysis
Spring I 2008
INSTRUCTOR: Robert Castaneda, DBA, CPA
PHONE:312-498-2028
EMAIL:[email protected]
FAX:312-945-3169
REQUIRED TEXTS:Title Investments: Analysis and managementAuthor(s) Jones, Charles P.Copyright (2006)Publisher Wiley PublishingISBN 9780470047811Edition 10th
This Course Requires the Purchase of a Course Packet: YES NO
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Argosy UniversityCOURSE SYLLABUS
FIN432Investment Analysis
Faculty InformationFaculty Name: Robert CastanedaCampus: ChicagoContact Information: [email protected] 312-498-2028 Fax: 312-945-3169Office Hours: 9AM to 10PM Mon-Fri 9AM to 5PM Saturday
Short Faculty Bio: Roberto Castaneda received his graduate degree (DBA) in Accounting from Argosy University/Schaumburg; (MM/MBA) in Marketing and Finance from Northwestern University, and his undergraduate degree in Accounting and Marketing from DePaul University. He is also a Certified Public Accountant. Dr. Castaneda has worked in senior finance positions at American Express, PepsiCo and McDonald’s Corporation in a number of international countries.
Course description: This course focuses on investment principles and problems. Topics include the effects of current financial events upon the markets and their operations. Students analyze the selection of investments that provide the maximum future return at an acceptable level of risk. Examination of marketable financial instruments, common stocks, preferred stocks, bonds, put options, call options, futures contracts on the traditional commodities, and financial futures.
Course Pre-requisites: None
Required Textbook:
Jones, Charles P. (2006). Investments: Analysis and management. (10th ed.). Wiley Publishing. ISBN# 9780470047811
Course length: 7.5 Weeks
Contact Hours: 45 Hours
Credit Value: 3.0
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Program Outcomes:
1. Communication1.1 Communicate business concepts effectively, both written and orally appropriate to the audience
2. Team2.1 Define the attributes of an effective team member and leader and the characteristics of an effective team in reaching specific
business goals3. Cognitive
3.1 Problem Solving – Given a business problem, select and defend a business solution chosen from specific alternatives 3.2 Information Literacy – Given a business research question, access information from a variety of sources, select appropriate
sources to respond to a business question4. Analysis/Application
4.1 Integration – Describe the interrelationship of the functional business areas of statistics, accounting, operations, finance, marketing, and strategy
5. Ethics/Diversity5.1 Diversity – Identify the issues and challenges related to diversity in current business organizations5.2 Ethics – Identify the issues and challenges related to ethics in current business organizations
6. Financial Application6.1 Given a specific business case, choose a financial strategy to reach a business goal
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Course Objectives:
1) Distinguish the differences between liquidity and marketability. (Program Outcomes: 1.1, 3.2, 4.1) 2) Assess the impact of a given monetary of fiscal policy on interest rates and/or security prices. (Program Outcomes: 1.1, 3.1,
4.1, 6.1)3) Compare and contrast various types of investment risks. (Program Outcomes: 1.1, 3.1, 4.1, 6.1)4) Describe the terminology, characteristics, and sources of risk of debt securities and preferred stock. (Program Outcomes: 1.1,
3.1, 3.2, 4.1, 6.1)5) Discuss equity investment valuation models. (Program Outcomes: 1.1, 3.1, 3.2, 4.1, 6.1) 6) Calculate the intrinsic value of a stock value and expected rate of return. (Program Outcomes: 1.1, 3.1, 4.1, 6.1)7) Calculate the price, compound return, taxable yield equivalent, and yield to maturity of a bond. (Program Outcomes: 1.1, 3.1,
3.2, 4.1, 6.1)8) Analyze the characteristics and sources of risk within various option strategies. (Program Outcomes: 1.1, 3.1, 3.2, 4.1, 6.1) 9) Evaluate the risk-adjusted performances of investment securities or portfolios. (Program Outcomes: 1.1, 2.1, 3.1, 3.2, 4.1, 6.1)10) Determine suitability of equity investment using ration analysis. (Program Outcomes: 1.1, 2.1, 3.1, 3.2, 4.1, 6.1)
Assignment Table
Topics Readings AssignmentsDB: Discussion Board or in Class Assignment. Suggested length is 3-5 Paragraphs ( Approx. 300-500 words), or as determined by instructorIP : Independent ProjectGP: Group Project
1 Liquidity and marketability considerations
The effect of the Monetary and Fiscal Policies on the Financial Markets
Chapters: 1, 2, 4 DB 1.1: (Relates to course objectives 1 & 2)
Discuss the distinctions between liquidity and marketability. In what way(s) are they related? What is the correlation between liquidity and safety? What is the correlation between safety and an investor’s required rate of return? Next, conduct an internet search to find an example of: 1) a specific investment with high
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liquidity; 2) a specific investment with low liquidity; 3) a specific investment with moderate liquidity and moderate to high returns. Make sure to provide detailed info about each investment’s yield (return) and relative safety.
DB 1.2: (Relates to course objective 2)
The Federal Reserve largely worked to decrease interest rates from 2001 (after the 9/11 terrorist attacks) until 2004. In the early part of 2004, the Fed then began raising interest rates once more. What are some reasons that the Fed lowered rates in the prior time periods and then switch to increasing interest rates in 2004 and 2005? What were some of the effects of Feds actions on the stock markets and the general levels of interest rates? Provide examples to support your rationale.
Next, review the Fed’s most recent Beige Book report at: http://www.federalreserve.gov/fomc/beigebook/2007/default.htm and comment on how the Fed’s recent monetary actions are affecting the overall economy, the general interest rates levels, and various financial markets.
2 Equity Investments: Part I
Diversifiable versus non-diversifiable risk
Beta Coefficient Expected returns The Constant dividend
Growth Model
Chapters: 6, 10 DB 2.1: (Relates to course objectives 3, 5, & 6)
Describe systematic and unsystematic risk and discuss which type of risk can be effectively managed through diversification. Next, research the Internet for an article from a reputable source that addresses the issue of how many securities are enough to properly diversify an investment portfolio. Discuss the salient points of the article and argue why you agree or disagree with the article’s main points.
IP 2.1: (Relates to course objectives 6 & 7)
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Mr. Martinez is a conservative investor who is interested in a required rate of return of 10% on his stock investments while assuming lower market risk. The three possible stock choices for Mr. Martinez and their respective betas are as follows:
Stock Expected Return BetaAAA 10% .75
GHL 11% 1.0BAC 12% 1.25
Part I
A) Determine the expected returns and beta for a portfolio consisting of one third of Mr. Martinez’s funds in each stock.
Part II
Assume that: Each AAA stock pays current dividends of $1.50
annually with 6% expected annual increases. The current market stock price for AAA is $30/Share.
Each GHL stock pays current dividends of $1.75 annually with 6% expected annual increases. The current market stock price for GHL is $27/Share.
Each BAC stock pays current dividends of $2.25 annually with 7% expected annual increases. Current market stock price for BAC is $35/Share.
A) Using the Constant Dividend Growth Model,
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determine whether AAA, GHL and BAC are over or undervalued.
B) For what types of companies, is the constant growth model an appropriate analysis tool?
C) What are the limitations of the constant growth model?
IP 2.1_ Instructor Answer Key
3 Equity Investments: Part II
The DOD stock investment strategy
The Dow Jones Industrial Stocks
Stock splits Stock dividends
Chapters: 8, 9 DB 3.1: (Relates to course objectives 4, 9, & 10) Compare and contrast a stock split with a reverse stock split and a stock dividend with a cash dividend. Explain how each process affects a company’s Earnings Per Share. Discuss whether you, an investor, would take a cash or stock dividend? Justify your rationale.
GP: (Relates to course objectives 6 & 10)
The Dogs of Dow (DOD) stock investment strategy is a fairly simple way of selecting high dividend yield Dow stocks for your investment portfolio. You are part of an investment club and have about $25,000 to invest. You and other members of your club are to:
1) Produce a 500 word summary explaining how DOD works.
2) Provide current stock price, price earnings (P/E), and dividend yield info. For all 30 Dow stocks using an Excel spreadsheet.
3) Using the “Sort” function of Excel, split the $25,000 among three-to-five suitable Dow Jones stock based on
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the DOD investment strategy and criteria. 4) Pretend that you have bough the stocks this week (week
three), and liquidate your positions by the end of week six. Assuming a 2% broker commission, calculate and show each of your stock positions gain or losses.
Useful sites for your project:Dogs of Dow Info. Pagehttp://www.dogsofthedow.com/
MSN stock quote pagehttp://moneycentral.msn.com/detail/stock_quote
Dow Jones Stocks Listhttp://www.stock1.com/dow30.htm
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4 Fixed Income Debt Securities
Taxable equivalent yield calculations.
Yield to Maturity Calculations.
Bond investment strategies
Convertible securities
Chapters: 17, 18 DB 4.1: (Relates to course objectives 4 & 8)
Joseph Paul is a 72 year old retiree whose investment objectives are safety of principal and current income. Mr. Paul is currently in the 25% combined federal and state marginal tax rate. Mr. Paul is considering an investment in one of the following bonds:
JKL Corporate Bond: A-Rated, 6.75% coupon rate, maturing in 7 years (recommended by a friend).
FHR Municipal Bond: AAA-rated, 5.25% coupon, also maturing in 7 years (recommended by her ACG investment advisor).
Using the taxable equivalent yield concept, discuss and argue which bond Mr. Paul should purchase. Your discussion should also include risk and other possible pertinent qualitative considerations. Support your rationale with research.
IP 4.1: The following WORD document contains a set of computational problems. Please solve these and make sure to show your computations. Submit this deliverable to the course instructor by or before 00/00/00.
Problem Document (Relates to course objective 8)
IP 4.1_Instructor Answer Key
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5 Technical & Fundamental Analysis
The benefits and limitations of ratio analysis.
Ratio Calculations.P/E ROAROECurrent ratio
Fundamental versus technical analysis.
Chapters: 13, 15, 16 DB 5.1: (Relates to course objective 10) Explain how ratio analysis can serve as an effective tool to assess the current and future financial status of firms. Describe the limitations of ratio analysis. Also discuss how fundamental type analysis, such as ratio analysis, differs from a technical analysis. Which types of analysis make the most sense to you? Provide evidence to support your rationale.
DB 5.2: (Relates to course objective 10)
Go to the EDGAR link on the SEC web page at : http://www.sec.gov/edgar/searchedgar/webusers.htm to conduct research about a public company of your choice.
Using the information in the company’s 10 K and stock research sites such as www. hoovers.com and http://moneycentral.msn.com/detail/stock_quote present the following information in your post about the Company you chose.
Its most current stock price Its stock 52 week highs and lows Company stock’s beta The company’s following financial ratios:
o P/E ratioo Return on Assetso Return on Equityo Current Ratio
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6 Portfolio Management Asset Allocation
Considerations. Suitability Factors Mutual Funds
Investing
Chapters: 3, 21, 22 DB 6.1: (Relates to Course objectives 9 & 10)
Shaun McGregor is a single, 47 year-old, plastic surgeon who currently owns a condominium in San Francisco worth $1,400,000. Dr. McGregor is doing quite well financially. His gross income from his practice last year exceeded $450,000. Due to his hectic schedule, Dr. McGregor has seldom taken the time to evaluate his portfolio performance; however, he thinks it isn't “quite up to par.”
Dr. McGregor has $325,000 in available funds currently sitting in a tax-exempt money market fund. He also has $130,000 invested in several stocks at a local discount brokerage house and he owns an IRA account funded with three mutual funds, currently worth about $270,000.
Dr. McGregor has the following investment objectives:
A sum of $20,000 is to be earmarked for Dr. McGregor’s upcoming wedding and honeymoon trip in June of next year. Dr. McGregor wants this portion invested in a very safe place with no expense, sales, or early withdrawal charges.
He is also planning to assist his nephew with college expenses in six years. To this end, he wants $30,000 earmarked in an account with higher than current certificate of deposit or money market rates but minimal market volatility.
His average, long-term (5+ years) minimum required rate on equity investments is 8%.
Dr. McGregor has a moderate risk tolerance. Construct an asset allocation model for Dr. McGregor,
including his financial objectives and risk tolerance level.
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Explain and defend the rationale behind recommending the model. The asset allocation must have between 3-5 asset classes.
1) Recommend at least two suitable investment alternatives for Shaun’s wedding.
2) Recommend a suitable stock for Dr. McGregor’s tuition assistance objectives. Explain how you came about your recommendation
DB 6.2: (Relates to course objectives 9 & 10)
Research the Internet and choose a suitable mutual fund that you can use to fund your IRA account. Provide detailed information about the fund, including the following:
The name of the fund Its portfolio manager’s name, experience, and
qualifications Its investment philosophy and strategy. How long this fund has been in existence. It’s current NAV (share price). Its yearly management fees (must not exceed 1% of
amount invested). The fund’s 1, 3 and 5 year returns*. An assessment of some of the risks involved in investing
in this fund. Names of some popular mutual fund families. (Please
note that a mutual fund family is comprised of many funds. Make sure to recommend specific funds.) Do not pick a mutual fund that has been in existence for less than five years, as it will not have an established track record. Providing a link to a fund web page is NOT an
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acceptable substitute for your discussion.
Franklin-Templeton
T. Rowe Price
Evergreen Jennison Dryden
Thornburg American funds
Vanguard Utopia Funds
Oppenheimer Fidelity Van Kampen Strong Funds
Washington Mutual Group of Funds
Pioneer Scudder Nuveen
7 Leveraged Investing Options & Futures Basic Hedging
Strategies
Chapters: 19, 20 DB 7.1: (Relates to course objective 8)
In your own words, provide a brief explanation each of the following terms. For each term, define its potential risks and corresponding rewards. In addition, identify the type of investor who may be interested in purchasing (not selling) such securities.
CallsPuts Futures contractFinancial future
IP 7.3-
The following WORD document contains a set of computational problems. Please solve these and make sure to show your computations. Submit this deliverable to the course instructor by or before 00/00/00.
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Final Comprehensive IP ( relates to course objectives 6, 7, & 8)
IP 7.3 Instructor Answer Key
8 DB 8.1: (Relates to course objective #8)
Peggy Jones, an investment portfolio manager at a local bank, is in charge of managing a $5,000,000 stock portfolio. Ms. Jones is considering the purchase of a large block of VCX stocks in several weeks, but believes that the stock VCX stock prices are very likely to go up by then. If Ms. Jones consults with you in regard to the best plan of action for investment and portfolio management of this account. How would you counsel her? Should she consider a long or short hedge strategy? Explain your reasoning behind your suggestion. GP due - See Module 3 for the requirements for this group project.
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Grading Criteria
Grading Scale Grading Requirements
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A 100 – 93A- 92 – 90B+ 89 – 88B 87 – 83B- 82 – 80C+ 79 – 78C 77 – 73C- 72 – 70D+ 69 – 68D 67 – 63D- 62 – 60F 59 and below
Attendance/participation 10%Weekly DB assignments 30%IP Assignments 30%GP 15%Final IP (8.3) 10%
100%
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In addition to online resources, Argosy University’s onsite collections contain a wealth of subject-specific research materials searchable in the Online Public Access Catalog. Catalog searching is easily limited to individual campus collections. Alternatively, students can search combined collections of all Argosy University Libraries. Students are encouraged to seek research and reference assistance from campus librarians.
Information Literacy: Argosy University’s Information Literacy Tutorial was developed to teach students fundamental and transferable research skills. The tutorial consists of five modules where students learn to select sources appropriate for academic-level research, search periodical indexes and search engines, and evaluate and cite information. In the tutorial, students study concepts and practice them through interactions. At the conclusion of each module, they can test their comprehension and receive immediate feedback. Each module takes less than 20 minutes to complete. Please view the tutorial at http://library.argosy.edu/infolit/
Academic Policies
Academic Dishonesty/Plagiarism: In an effort to foster a spirit of honesty and integrity during the learning process, Argosy University requires that the submission of all course assignments represent the original work produced by that student. All sources must be documented through normal scholarly references/citations and all work must be submitted using the Publication Manual of the American Psychological Association, 5th Edition (2001). Washington DC: American Psychological Association (APA) format. Please refer to Appendix A in the Publication Manual of the American Psychological Association, 5th Edition for thesis and paper format. Students are encouraged to purchase this manual (required in some courses) and become familiar with its content as well as consult the Argosy University catalog for further information regarding academic dishonesty and plagiarism.
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Scholarly writing: The faculty at Argosy University is dedicated to providing a learning environment that supports scholarly and ethical writing, free from academic dishonesty and plagiarism. This includes the proper and appropriate referencing of all sources. You may be asked to submit your course assignments through “Turnitin,” (www.turnitin.com), an online resource established to help educators develop writing/research skills and detect potential cases of academic dishonesty. Turnitin compares submitted papers to billions of pages of content and provides a comparison report to your instructor. This comparison detects papers that share common information and duplicative language.
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It is the policy of Argosy University to make reasonable accommodations for qualified students with disabilities, in accordance with the Americans with Disabilities Act (ADA). If a student with disabilities needs accommodations, the student must notify the Director of Student Services. Procedures for documenting student disability and the development of reasonable accommodations will be provided to the student upon request.
Students will be notified by the Director of Student Services when each request for accommodation is approved or denied in writing via a designated form. To receive accommodation in class, it is the student’s responsibility to present the form (at his or her discretion) to the instructor. In an effort to protect student privacy, the Department of Student Services will not discuss the accommodation needs of any student with instructors. Faculty may not make accommodations for individuals who have not been approved in this manner.
The Argosy University Statement Regarding Diversity
Argosy University prepares students to serve populations with diverse social, ethnic, economic, and educational experiences. Both the academic and training curricula are designed to provide an environment in which students can develop the skills and attitudes essential to working with people from a wide range of backgrounds.
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