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# Sample Course Road Map

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 LECTURE NO. TOPIC LEVEL 1* The Time Vale of Money Medium (Week 1-2) a.  Interpret interest rates as required rate of return discount rate, or opportunity cost. b.  Explain interest rates as the sum of a real risk-free rate, expected inflation, and premiums that compensate investors for distinct types of risk.
 2 The Time Vale of Money High (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 questions) 3 The Time Vale of Money Medium (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) 4 The Time Vale of Money High (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 questions) 5 Discounted Cash Flow Medium
 Applications (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) 6 Discounted Cash Flow High Applications (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 questions) 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 questions) f. Convert among holding period yield money market yields, effective annual yields, and bond equivalent yields. (May involve numeric questions) 7 Discounted Cash Flow Medium Applications (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) 8 Statistical Concepts and Medium 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 distribution. 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 polygon. 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) 9 Statistical Concepts and Medium 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) 10 Statistical Concepts and High 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 distribution. k. Define and interpret measure of sample skewness and kurtosis. l. Discuss the use of arithmetic mean or geometric mean when determining investment returns. 11 Probability Concepts Medium (Week 5-7) a. Define a random variable an outcome an event mutually exclusive and exhaustive events. b. Explain the two defining properties of probability and distinguish among empirical subjective and priori probabilities. c. State the probability of an event in terms of odds for or
 against the event. d. Distinguish between unconditional and conditional probabilities. 12 Probability Concepts Medium (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 events. h. Calculate and interpret, using the total probability rule, an unconditional probability. (May involve numeric questions) 13 Probability Concepts High (Week 5-7) i. Explain the use of conditional expectation in investment applications. j. Diagram an investment problem using a tree diagram. k. Calculate and interpret covariance and correlation. (May involve numeric questions) 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) 14 Probability Concepts High

 (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 questions) 15 Common Probability High Distributions (Week 8-9) a. Define a binomial random variable. b. Calculate and interpret probabilities given the binomial distribution functions. (May involve numeric questions) 16 Common Probability High Distributions (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) 17 Portfolio Management: An Medium Overview 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 each. c. Describe the steps in the portfolio management process. 18 Portfolio Management: An Medium Overview (Week 12) d. Describe compare, and contrast mutual funds and other forms of pooled investments. 19 Portfolio Risk and Return: Part High I (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 theory c. Calculate and interpret the mean, variance and covariance (or correlation) of asset returns based on historical data. (May involve numeric questions) d. Explain risk aversion and its implication for portfolio standard deviation 20 Portfolio Risk and Return: Part High I (Week 12-13) e. Calculate and interpret portfolio standard deviation. (May involve numeric questions) 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) 21 Portfolio Risk and Return: Part High II (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 (CML). c. Explain systematic and non-systematic risk and why an investor should not expect to receive additional return for bearing non-systematic risk. 22 Portfolio Risk and Return: Part High II (Week 13-14) d. Explain return generating models (including the market model) and their uses. e. Calculate and interpret beta. (May involve numeric questions) f. Explain the capital asset pricing model (CAPM) including the required assumptions, and the security market line (SML) 23 Portfolio Risk and Return: Part High

 II (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. 24 Multifactor Models and APT Medium (Week 15-16) a. Describe and compare macroeconomic factor models, fundamental factor models, and statistical factor models. b. Calculate the expected return on a portfolio of two stocks, given the estimated macroeconomic factor model for each stock. (May involve numeric questions) 25 Multifactor Models and APT Medium (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. 26 Derivative Markets and Medium Instruments (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

swaps.

1. Discuss the purposes and criticisms of derivative markets.
2. Explain arbitrage and the role it plays in determining prices and promoting market efficiency.
 27 Forward Market Contracts High (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 risk. c. Differentiate between a dealer and an end user of a forward contract. d. Describe the characteristics of equity forward contracts and forwards contracts on zero- coupon and coupon bonds.
 28 Forward Market Contracts High (Week 18) e. Describe the characteristics of the Eurodollar time deposit market, and define LIBOR and Euribor. 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 questions) h. Describe the characteristics of

currency forwards contracts.

 29 Futures Markets Contracts Medium (Week 18) a. Describe the characteristics of futures contracts. b. Distinguish between futures contracts and forward contracts. 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 questions) 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 currency. 30 Option 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 instruments. f. Compare and contrast interest

rate options with forward rate

agreements.

 31 Option 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 questions) i. Define intrinsic value and time value, and explain their relationship. 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) 32 Option 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 options. 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.

 33 Swap 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 Presentations/Projects (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)

#### ASSIGNMENT/PRESENTATION/SEMINAR

• 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].

#### COMPUTER APPLICATIONS

• 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