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Sample Course Road Map

Sample Course Road Map

1*The Time Vale of MoneyMedium
(Week 1-2)
a.  Interpret interest rates as
required rate of return
discount rate, or opportunity
b.  Explain interest rates as the
sum of a real risk-free rate,
expected inflation, and
premiums that compensate
investors for distinct types of
2The Time Vale of MoneyHigh
(Week 1-2)
c.Calculate and interpret the
effective annual rate, give the
stated annual interest rate and
the frequency of
compounding. (May involve
numeric questions)
d.Solve time value of money
problems when compounding
periods are other than annual.
(May involve numeric
3The Time Vale of MoneyMedium
(Week 1-2)
e.Calculate and interpret the
future value (FV) and present
value (PV) of a single sum of
money an ordinary annuity an
annuity due perpetuity (PV
only) and a series of unequal
cash flows. (May involve
numeric questions)
4The Time Vale of MoneyHigh
(Week 1-2)
f.Draw a time line and solve
time value of money
applications (for example
mortgages and savings for
college tuition or retirement).
(May involve numeric
5Discounted Cash FlowMedium
(Week 3-4)
a.Calculate and interpret the net
present value (NPV) and the
internal rate of return (IRR) of
an investment. (May involve
numeric questions)
b.Contrast the NPV rule to the
IRR rule, and identify
problems associated with the
IRR rule.
c.Define, calculate and interpret
holding period return (total
return). (May involve
numeric questions)
6Discounted Cash FlowHigh
(Week 3-4)
d.Calculate interpret, and
distinguish between the
money weighted and time
weighted rates of return of a
portfolio and appraise the
performance of portfolios
based on these measures.
(May involve numeric
e.Calculate and interpret the
bank discount yield, holding
period yield effective annual
yield and money market
yields, for a US treasury bill.
(May involve numeric
f.Convert among holding period
yield money market yields,
effective annual yields, and
bond equivalent yields. (May
involve numeric questions)
7Discounted Cash FlowMedium
(Week 3-4)
g.(cont.) Calculate and interpret
the bank discount yield,
holding period yield effective
annual yield and money
market yields, for a US
treasury bill. (May involve
numeric questions)
h.Convert among holding period
yield money market yields,
effective annual yields, and
bond equivalent yields. (May
involve numeric questions)
8Statistical Concepts andMedium
Market Returns
(Week 4-5)
a.Differentiate between
descriptive statistics and
inferential statistics, between
a population and a sample,
and among the types of
measurement scales.
b.Define a parameter a sample
statistic, and a frequency
c.Calculate and interpret
relative frequencies and
cumulative relative
frequencies given a frequency
distribution (May involve
numeric questions)
d.Describe the properties of
data set presented as a
histogram or a frequency
e.Define calculate and interpret
measures of central tendency,
including the population mean
sample mean sample mean
arithmetic mean, weighted
average or mean (including a
portfolio return viewed as a
weighted mean), geometric
means harmonic means media
and mode. (May involve
numeric questions)
f.Describe calculate and
interpret quartiles quintiles
deciles and percentiles. (May
involve numeric questions)
9Statistical Concepts andMedium
Market Returns
(Week 4-5)
g.Define calculate and interpret
1) a range and a mean
absolute deviation and 2) the
variance and standard
deviation of a population and
of a sample (May involve
numeric questions)
h.Calculate and interpret the
proportion of observations
falling within a specified
number of standard deviations
of the mean using Chebyshev’s
inequality. (May involve
numeric questions)
i.Define calculate and interpret
the coefficient of variation and
the Sharpe ratio. (May
involve numeric questions)
10Statistical Concepts andHigh
Market Returns
(Week 4-5)
j.Define and interpret skewness
explain the meaning of a
positively or negatively
skewed return distribution and
describe the relative locations
of the mean median and mode
for a nonsymmetrical
k.Define and interpret measure
of sample skewness and
l.Discuss the use of arithmetic
mean or geometric mean
when determining investment
11Probability ConceptsMedium
(Week 5-7)
a.Define a random variable an
outcome an event mutually
exclusive and exhaustive
b.Explain the two defining
properties of probability and
distinguish among empirical
subjective and priori
c.State the probability of an
event in terms of odds for or
against the event.
d.Distinguish between
unconditional and conditional
12Probability ConceptsMedium
(Week 5-7)
e.Define and explain the
multiplication addition and
total probability rules.
f.Calculate and interpret 1) the
joint probability of two events,
2) the probability that at least
one of two event will occur
given the probability of each
and the joint probability of the
two events, and 3) a joint
probability of any number of
independent events. (May
involve numeric questions)
g.Distinguish between
dependent and independent
h.Calculate and interpret, using
the total probability rule, an
unconditional probability.
(May involve numeric
13Probability ConceptsHigh
(Week 5-7)
i.Explain the use of conditional
expectation in investment
j.Diagram an investment
problem using a tree diagram.
k.Calculate and interpret
covariance and correlation.
(May involve numeric
l.Calculate and interpret the
expected value, variance and
standard deviation of a
random variable and of
returns on a portfolio. (May
involve numeric questions)
14Probability ConceptsHigh

(Week 5-7)
m.  Calculate and interpret
covariance given a joint
probability function. (May
involve numeric questions)
n.Calculate and interpret an
updated probability using
Bayes’ formula. (May
involve numeric questions)
o.Identify the most
appropriate method to
solve a particular counting
problem, and solve
counting problems using
factorial, combination, and
permutation concepts.
(May involve numeric
15Common ProbabilityHigh
(Week 8-9)
a.Define a binomial random
b.Calculate and interpret
probabilities given the
binomial distribution
functions. (May involve
numeric questions)
16Common ProbabilityHigh
(Week 8-9)
c.Construct a binomial tree to
describe stock price
movement. (May involve
numeric questions)
d.Define calculate and interpret
tracking error. (May involve
numeric questions)
Computer Applications and
Course Revision (Week 10-11)
17Portfolio Management: AnMedium
From 11 Dec, 2017.
(Week 12)
a.Explain the importance of the
portfolio perspective.
b.Discuss the types of
investment management
clients and the distinctive
characteristics and needs of
c.Describe the steps in the
portfolio management
18Portfolio Management: AnMedium
(Week 12)
d.Describe compare, and
contrast mutual funds and
other forms of pooled
19Portfolio Risk and Return: PartHigh
(Week 12-13)
a.Calculate and interpret major
return measures and describe
their applicability. (May
involve numeric questions)
b.Describe the characteristics of
the major asset classes that
investors would consider
informing portfolios according
to mean-variance portfolio
c.Calculate and interpret the
mean, variance and covariance
(or correlation) of asset
returns based on historical
data. (May involve numeric
d.Explain risk aversion and its
implication for portfolio
standard deviation
20Portfolio Risk and Return: PartHigh
(Week 12-13)
e.Calculate and interpret
portfolio standard deviation.
(May involve numeric
f.Describe the effect on a
portfolio risk of investing in
assets that are less than
perfectly correlated.
g.Describe and interpret the
minimum variance and
efficient frontiers of risky
assets and the global
minimum variance portfolio.
h.Discuss the selection of an
optimal portfolio given an
investor’s utility (or risk
aversion) and the capital
allocation line.
Computer Applications
(Risk and Return Calculations
regarding portfolios on excel
using real time data)
21Portfolio Risk and Return: PartHigh
(Week 13-14)
a.Discuss the implication of
combining risk free asset with
a portfolio of risky assets.
b.Explain and interpret the
capital allocation line (CAL)
and the capital market line
c.Explain systematic and
non-systematic risk and why an
investor should not expect to
receive additional return for
bearing non-systematic risk.
22Portfolio Risk and Return: PartHigh
(Week 13-14)
d.Explain return generating
models (including the market
model) and their uses.
e.Calculate and interpret beta.
(May involve numeric
f.Explain the capital asset
pricing model (CAPM)
including the required
assumptions, and the security
market line (SML)
23Portfolio Risk and Return: PartHigh

(Week 14-15)
g.Calculate and interpret the
expected return of an asset
using the CAPM (May
involve numeric questions)
h.Illustrate applications of the
CAPM and the SML.
24Multifactor Models and APTMedium
(Week 15-16)
a.Describe and compare
macroeconomic factor
models, fundamental factor
models, and statistical factor
b.Calculate the expected return
on a portfolio of two stocks,
given the estimated
macroeconomic factor model
for each stock. (May involve
numeric questions)
25Multifactor Models and APTMedium
(Week 15-16)
c.Describe arbitrage pricing
theory (APT), including its
underlying assumptions and
its relation to multifactor
models, define arbitrage
opportunity and determine
whether an arbitrage
opportunity exists and
calculate the expected return
on an asset given an asset’s
factor sensitivities and the
factor risk premiums.
26Derivative Markets andMedium
(Week 17)
a.Define a derivative and
differentiate between
exchange-traded and over-the-
counter derivatives.
b.Define a forward commitment
and a contingent claim.
c.Differentiate among the basic

characteristics of forward

contracts, futures contracts,

options (calls and puts), and


  1. Discuss the purposes and criticisms of derivative markets.
  2. Explain arbitrage and the role it plays in determining prices and promoting market efficiency.
27Forward Market ContractsHigh
(Week 17)
a.Explain delivery/ settlement
and default risk for both long
and short positions in a
forward contract.
b.Describe the procedures for
settling a forward contract at
expiration, and discuss how
termination alternatives prior
to expiration can affect credit
c.Differentiate between a dealer
and an end user of a forward
d.Describe the characteristics of
equity forward contracts and
forwards contracts on zero-
coupon and coupon bonds.
28Forward Market ContractsHigh
(Week 18)
e.Describe the characteristics of
the Eurodollar time deposit
market, and define LIBOR and
f.Describe the characteristics
and calculate the gain/loss of
forward rate agreements
(FRAs) (May involve
numeric questions)
g.Calculate and interpret the
payoff of an FRA, and explain
each of the component terms
(May involve numeric
h.Describe the characteristics of

currency forwards contracts.

29Futures Markets ContractsMedium
(Week 18)
a.Describe the characteristics
of futures contracts.
b.Distinguish between futures
contracts and forward
c.Differentiate between
margins the securities
markets and margin in the
futures markets, and explain
the role of initial margin,
maintenance margin,
variation margin, and
settlement on future trading.
d.Describe price limits and the
process of marketing to
marker, and calculate and
interpret the margin balance,
given the previous day’s
balance and the change in
the future price (May
involve numeric
e.Describe how a future
contracts can be terminated
at or prior to expiration.
f.Describe the characteristics
of the following types of
futures contracts: Treasury
bill, Eurodollar, Treasury
bond, stock index, and
30Option Markets and Contracts:Medium
(Week 19-20)
a.  Describe call and put options.
b.Distinguish between European
and American options.
c.Define the concept of money-
ness of an option.
d.Differentiate between
exchange –traded options and
over-the –counter options.
e.  Identify the types of options in
terms of the underlying
f.Compare and contrast interest

rate options with forward rate


31Option Markets and Contracts:High
(Week 19-20)
g.Define interest rate caps
floors, and dollars.
h.Calculate and interpret option
payoffs, and explain how
interest rate options differ
from other types of options
(May involve numeric
i.Define intrinsic value and time
value, and explain their
j.Determine the minimum and
maximum values of European
options and American options.
k.Calculate and interpret for
minimum values and lower
bounds. (May involve
numeric questions)
32Option Markets and Contracts:High
(Week 19-20)
l.Explain and calculate how the
value of an option is
determined using a one-
period binomial model. (May
involve numeric questions)
m.  Explain how option prices are
affected by the exercise price
and the time to expiration.
n.Explain put-call parity for
European options and relate
put-call parity to arbitrage and
the construction of synthetic
o.Contrast American options
with European options in
terms of the lower bounds on
option prices and the
possibility of early exercise.
p.Explain how cash flows on the
underlying asset affect put-call
parity and the lower bounds
of option prices.
q.Indicate the directional effect
of an interest rate change or

volatility change on an

option’s price.

33Swap Markets and Contracts:High
(Week 20-21)
a.  Describe the characteristics of
swap contracts and explain
how swaps are terminated.
b.  Define, calculate, and
interpret the payments of
currency swaps, plain vanilla
interest rate swaps, and equity
swaps. (May involve
numeric questions)
Course Revision and
(Week 21)
  • *Lecture 1 includes the course introduction, exam format and marking scheme. and marking scheme.
  • Financial calculator is a MUST
  • Expected Hours: 48 (including computer applications) or 45 (without computer applications)


  • 1 session on Asset Pricing Models (Mid of November 17 or J anuary 18) [5 marks]
  • Project based on Portfolios Risk and Return. (Deadline: 15th J anuary, 2018) [10 marks].
  • Group presentation on the performance of Futures Market. (Deadline: First week of Feb, 2018) [5 marks].


  • Calculation of NPV and IRR on MS Excel.
  • Descriptive Statistics on SPSS (Return distribution using real time data).
  • Tree diagram using MS Excel.
  • Risk/Return calculation regarding portfolios using MS Excel.
  • One period binomial model for option pricing

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