Chapel Garden

FINANCE 586: PORTFOLIO THEORY & MANAGEMENT

INSTRUCTOR: Riaz Hussain OFFICE: Brennan 431

 OFFICE HOURS: By appointment only.

TELEPHONE: Office 941-7497, secretary 941-4048, home 347-8077, Fax: 941-4825,   e-mail: Send an email.

OBJECTIVES: After successfully completing this course, the students will

1. Know the basic concepts of statistics

2. Understand the basics of portfolio theory

3. Understand the concept of β and the Capital Asset Pricing Model

5. Know how to construct efficient portfolios using Markowitz analysis

6. Understand the basic idea of utility theory and its relationship to risk

7. Know the formation of optimal portfolios

8. Be able to estimate the parameters of a stock, such as its β, E(R), σ(R) and r12

9. Be able to use the method of Lagrange Multipliers in portfolio formation

10. Understand the basics of bond valuation

11. Use duration analysis in bond-portfolio management

12. Understand the basic techniques of portfolio protection

13. Be able to do in depth analysis of a certain industry

14. Be able to manage a real portfolio for an institution or for an individual

TEXT: Portfolio Theory, by Riaz Hussain, University of Scranton, July 2011. The sale of this book supports a scholarship at the University.

The students taking this course are required to read The Wall Street Journal or The New York Times on a daily basis. Free online subscription to The New York Times is available at www.nytimes.com. The students should be able to look up the current prices, interest rates, and other data, from the Internet.

PREREQUISITES: FIN 508.

EXAMINATIONS: There will be three class tests and a final examination. All tests will be closed book, but the students may bring a formula sheet. Make-up tests will not be given except under real emergencies.

 GRADING POLICY: The students' grades will depend upon their mastery of the subject matter as evidenced by their performance in tests, portfolio reports, and classroom participation.

PORTFOLIO MANAGEMENT: Every student must manage a simulated portfolio and report its performance periodically. Randomly selected students will be asked to present informally in the class oral progress reports on their portfolios. The written reports should give all the buy and sell information along with the rationale of the moves. A final report summarizing the activity for the entire semester will be presented at the end of the term.

 WEIGHTS: The weights for various activities in the course are as follows:

 Three midterm tests 45%,

Final examination 40%,

Portfolio reports: written 10%, oral 5%.

SUBJECT: The course will probably cover the following topics:

Date, 2011

Chapter

1

1. Financial Securities and Markets

2. Analytical Tools

3. Basic Portfolio Theory

2

July 7

4. Capital Asset Pricing Model

3

July 11

5. Efficient Portfolios

4

July 12

6. Utility Theory

5

July 14, First Test

6. Utility Theory

6

July 18

7. Optimal Portfolio Formation

7

July 19

8. Parameter Estimation

8

July 21

9. Method of Lagrange Multipliers

9

July 25, Second Test

9. Method of Lagrange Multipliers

10

July 26

10. Bond Portfolio Management

11

July 28

11. Duration Analysis

12

August 1, Third Test

12. Portfolio Protection

13

August 4

Final Examination

Fin. 586: Portfolio Theory

How to Write a Portfolio Report

The following instructions will give you some direction in writing your report. The instructions are not comprehensive, and you have some flexibility in your exposition. The report should be in your words, reflecting your own writing ability. Try to be careful with grammar, spelling, and sentence structure. Avoid using passive voice. Also, avoid long, complicated sentences. Write in fairly short paragraphs, focusing on one or two points.

You may be able to get the information primarily from the Internet. If you have read some other news or articles, you may refer to them in your report.

1. Give an overview of the industry that you are working in. This includes the major players in this area; the direction in which this industry is moving; any new regulations or legislation that will impact this industry; any radical changes in the structure of this industry.

2. Give sufficient details about 5 companies in this industry. This should touch upon the following: their relative strengths and weaknesses, their market share, their management style, and other non-financial issues.

3. Give some recent news about the industry, and the individual companies. Give some indication about the future of these companies due to the recent developments.

4. Give some statistical information about these companies. This information is best displayed in the form of two to four tables. Give their financial information, such as, P/E ratios, betas, market capitalization, debt ratio, dividends, revenues, growth rates, and any other relevant information. You may also include other information about these companies, namely, their size, or number of employees, or number of stores, or load factor.

5. Analyze the above information to formulate your buy recommendation for one or two stocks. The final result should be based on factual information.

 6. Limit your report to ten double-spaced pages.  You may submit your report using the Angel facility.