FIN121.3
BBA, Specialization, Finance
Course Objectives:
This course aims to provide students with the knowledge and skill required to value financial assets and portfolio of financial assets. Finance I and Finance II are prerequisites for this course.
Course Contents:
1. Review and Risk and Return 6 hours
Probability distribution of the investment returns, expected rate, variance, standard deviation, covariance, and correlation of returns.
Investors' constraints: risk aversion, liquidity, time horizon, etc.
Appropriate risk measures for individual assets, and portfolio of assets. Risk contribution of components asset on risk of a portfolio.
2. Portfolio Theory, Asset Allocation and Security Selection 9 hours
Markowitz portfolio selection model; Tobin’s separation theorem and resulting tangency portfolio; Capital Allocation
Line and Capital Market Line; Risk Aversion and Asset Allocation; Active vs Passive strategy for asset allocation.
Systematic and Unsystematic risk, Security Market Line, and Capita! Asset pricing Model.
3. Interest Rates and Risk Premiums 6 hours
Interest rates and their determination, term structure of interest rates and theories of term structures: real and nominal
interest rates; Interest Rate Structures in Nepalese Financial Market
4. Bond Price and Yields 9 hours
Price and Yield to Maturity (YTM) Relationship; Relationship among coupon rate, YTM. and current yield for Premium Bond, Discount Bond, and Bond at Par; yield-to-maturity, yield-to-call, holding period return, promised yield and realized yield, yield to call. Price risk and reinvestment rate risks on bond investment; Maturity effect and coupon effect on interest rate risk, Macaulay’s Duration and Modified Duration; Immunization by duration matching. Relating the concepts learned to real life through observation of Nepal’s Treasury Bills and Government Bond markets.
5. Valuation of Common Stocks 9 hours
Fundamental Analysis; Dividend discount model with zero-growth, constant perpetual growth, two-staged growth; Price Ratio Analysis: PIE, Price to Book, Price to sales, etc.
Market efficiency and stock Price Behavior in developed market. Comparing and contrasting the stock price behavior in Nepalese market. Relating concepts learnt to value some of the stocks traded on Nepal Stock Exchange.
6. Valuation of Options and options linked securities 9 hours
Types of basic option contracts: put and call; Factors affecting options value; Pricing options with one period and two periods to expiry using binomial method; Evaluating investment projects with options with to abandon and expand; Valuation of warrants; valuation of convertible securities.
Text Books
1. Bodies, Z., Kane A., and Marcus A. J.: Investments, McGraw-Hill Irwin.
2. Brealey, R. A. and Myers, S. C.: Principles of Corporate Finance, McGraw-Hill
Reference Books
1. Sharpe, W. F., Alexander, G. J., and Bailey, J. V.: Investments, Prentice-Hall of India Pvt. Ltd.
2. Cheney, J. M., and Moses, E. A.: Fundamentals of Investments, West Publishing Company.
3. Corrado, Carles J and Jordan, Bradford D.: Fundamentals of Investments, McGraw-Hill International Editions
4. Chance, Don M.: An Introduction to Derivative and Risk Management, THOMSON South-Western
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