School of Administrative StudiesFaculty of Liberal Arts and Professional Studies

Fixed Income Securities and Risk ManagementCourse Number: AP/ADMS 4504 M & N

Term: Winter 2016Course Outline

Instructor: Saikat Sarkar, email: sarkars@yorku.ca

Location: Section N HNE 035Section M HNE 030

Time: Section N Tuesday 4:00 - 7:00 pmSection M Wednesday 7.00 - 10.00pm

O¢ ce Hour:Room: Atkinson 242

Section NSection M

Tuesdays1:00 - 3.30 pm orby appointments

Course Description

This course introduces you to �xed income securities and markets. Topics covered include:debt securities, risks of investing in bonds, the pricing of �xed income securities, the measure-ment of interest rate risk, the term structure and volatility of interest rates, mortgage-backedand asset-backed securities, the valuation of mortgage-backed and asset-backed securities,credit analysis and interest rate derivatives etc. A notable feature of this course is that itis based on the Chartered Financial Analyst (CFA) curriculum, thus preparing you forwriting the �xed income parts of both the Level I and Level II of the CFA exams. Thiscourse is both rich in content and fast in pace. Therefore, signi�cant out of class work isrequired for each of you.

Prerequisites

AP/ADMS 3530 (Finance) and AP/ADMS 3531 (Personal Investment Management) areprerequisites. You are also highly recommended to take AP/ADMS 4503 (Deriv-ative Securities) at your convenient time. But AP/ADMS 4503 is no longer aco-requisite for this course.

Student Evaluation

Assignments (2 @ 7.5% each) 15%Midterm Exam 35%Final Exam 50%.

Textbooks: Fixed Income Analysis, third edition, Barbara S. Petitt, Jerald E. Pinto,and Wendy L. Pirie (edited), John Wiley & Sons, Inc., 2015.

Supplementary Readings

1. Bond Markets, Analysis, and Strategies, seventh edition or eighth edition, Frank J.Fabozzi, Pearson Education Inc., publishing as Prentice Hall, 2010 for the seventhedition or 2013 for the eighth edition.

2. Fixed Income Securities: Tools for Today�s Markets, second edition, Bruce Tuckman,John Wiley & Sons, Inc., 2002.

Please note: A number of references will also be posted on the course website throughoutthe semester. You are required to read these references since they will be tested in the exams.

Method of Instruction

A combination of lectures, discussions and problem solving will be used. PowerPoint slidesused in the lectures are available from a link on the course website. Throughout the course,your active participation is encouraged. You are required to think, to analyze, to evaluate,and to apply problem-solving techniques.

Written Assignments

There are two assignments. Assignments will be posted on the course website at least threeweeks in advance of the due date. Assignments involve problem-solving and short answersand must be submitted individually in hard copies. Assignments are due at the start of theclass on the assigned date. Late assignments will NOT be accepted. If your assignment islate, you will receive a mark of zero (0). Under no circumstances will faxed or photocopiedassignments be accepted. Neither can an assignment be submitted by e-mail.

Midterm and Final Exams

Both midterm and �nal exams are closed book and involve problem-solving and shortanswers. If you miss a midterm exam for a legitimate reason, your �nal exam performancerelative to other students in the class will be used to estimate your midterm exam mark.There is NO make up midterm exam. The estimation and any further adjustments will beentirely at the discretion of the Course Director/Area Coordinator and not subject to anyappeal. Students with a con�ict due to religious reasons will be accommodated. Pleaseinform the Course Director in writing by the fourth class if you have such a con�ict. Allstudents who need a passing grade for the course must take the �nal exam.

Financial Calculator

A �nancial calculator is required. If you will pursue the CFA designation in the future,note that only two types of calculator are currently allowed for the CFA exams: the TexasInstruments BAII Plus (BAII Plus) and the Hewlett-Packard 12C (HP-12C).

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Formula Sheets

The formula sheets that you will need for both the midterm and �nal exams will be postedon the course website at least one week prior to the exams. Do NOT bring the formulasheets to the exams with you. You will be provided with copies of the formula sheets at theexams.

Policy for Exam Deferrals

According to the School Guidelines, Deferred Standing Agreement (DSA) may begranted to undergraduate students who are unable to write their �nal examination at thescheduled time or to submit their �nal assignment on the last day of classes. NOTE: Thereis no provision for rewriting a �nal examination to improve a �nal grade. In fact, studentswho defer the �nal examination experience a high failure rate because they start to forgetwhat they have learned in the course.

In order to apply for deferred standing, students must complete a DSA form and sub-mit their request no later than �ve (5) business days from the date of the exam. Therequest must be properly submitted with supporting documentation directly to the maino¢ ce of the School of Administrative Studies (Atkinson 282), NOT to the Course Direc-tor. These requests will be considered on their merit and decisions will be communicatedto the students by the main o¢ ce. NOTE: It is the policy of the Administrative StudiesFinance Area that instructors will NOT sign a DSA form if you miss both the midterm and�nal exams. Students in this situation will need to petition for a remedy appropriate to theircircumstances.

Students with approved DSA will then be able to write their deferred examination duringthe School�s deferred examination period. No further extensions of deferred exams shall begranted. The format and covered content of the deferred examination may be di¤erent fromthat of the originally scheduled examination. The deferred exam may be closed book, cumu-lative and comprehensive and may include all subjects/topics of the textbook whether theyhave been covered in class or not. Any request for deferred standing on medical grounds mustinclude an Attending Physician�s Statement form; a �Doctor�s Note�will not be accepted.

DSA form: http://www.registrar.yorku.ca/pdf/deferred_standing_agreement.pdfAttending Physician�s http://www.registrar.yorku.ca/pdf/attend_physician_statement.pdfStatement:

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Tentative Course Schedule

The topic order will be as stated below. However, if we can not �nish the material listedin a week, the remainder will be carried forward to the following week. Depending on timeconstraint some topics may be subject to minor changes.

Week Date Topic and Textbook Material

1 January 5 and 6 Features of Debt Securities and Risks in BondInvestments, Chapters 1 and 4

2 January 12 and 13 Overview of Bond Sectors, and UnderstandingYield Spreads, Chapter 2

3 January 19 and 20 Introduction to the Fixed Income Valuation,and Duration and Convexity, Chapters 3 and 4

4 January 26 and 27 Yield Measures, Spot Rates, and Forward RatesChapter 10

5 February 2 and 3 Term Structure and Volatility of Interest RatesChapter 8 and References to be posted online

6 February 9 and 10 Binomial Model and Convertible BondsChapter 8 and Chapter 9

Midterm Exam: February 20th, Saturday, 6 - 8 pm, Room: TBAThe midterm exam will test topics taught in lectures 1 - 6.

7 February 23 and 24 Mortgages I: Residential Mortgages andMortgage-Backed Securities, Chapter 7

February 23 and 24 Assignment 1 is due date.

8 March 1 and 2 Mortgages II: Prepayment Models and CommercialMortgages, References to be posted online

9 March 8 and 9 Asset-Backed Securities and Monte CarloSimulation Model, Chapter 7 and Section 8.4

10 March 15 and 16 General Principles of Credit AnalysisChapter 5

11 March 22 and 23 Credit Analysis ModelsChapter 6

12 March 29 and March 30 Modelling the Term Structure of Interest Rates,and Interest Rate Derivatives, Chapter 10

March 29 and March 30 Assignment 2 is due date.

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