Course Information Undergraduate prospectus

Principles of Investment

Course summary

Course code: ECON1145
Level: 6
Credits: 30
School: Business Faculty
Department: International Bus and Economics
Course Coordinator(s): Seyed Pourhosseini

Specification

Introduction and rationale

The current Econ 1033: Economics of Finance and Investment is an optional for BA (Hons) Business
Economics, BSc (Hons) Economics and BSc (Hons) Economics with Banking. Under this review this
course remains optional for BA (Hons) Business Economics, BSc (Hons) Economics but will be
compulsory for BSc Economics with Banking, in order to enhance students’ knowledge of
investment, Portfolio management and Fixed Income in the context of operation of modern financial
institutions. This will improve critical thinking and employability of the graduate interested in
commercial banking, investment, banking, private equity and hedge fund careers. The course will
build up on what the students have learnt from the new compulsory course: Banking and Finance in
a Global Context focusing on investing in Stocks, commodities, bonds and expand their knowledge of
options and futures and high frequency trading.

Aims

This course intends to provide the students of BSc (Hons) economics with banking the necessary
knowledge in principles of investment by covering the investment environment: Asset classes and
marketable financial securities, risk and returns , risk tolerance and capital allocation to risky assets,
portfolio theory and international diversification, capital asset pricing model , arbitrage pricing
theory , future markets, Hedging and speculation , options term structure of interest rates , fixed
income analysis , security analysis , equity valuation models and portfolio performance evaluation ,
fundamental features of bond markets, techniques for pricing bonds, portfolio strategies in the bond
market , design and implementation of structured products, securitization of assets, quantitative
models and industry standard tools to evaluate the risk of bond market portfolios, U.S. Treasury
securities, Bond pricing and yields, Yield measures, Yield curve analysis and estimation, Corporate
Bonds, Credit ratings. Credit risk analysis, Investment grade bonds, High Yield bonds, Eurobond
market, Structured notes, indexed bonds and bonds with embedded options, Structured notes,
indexed bonds and bonds with embedded options, Bonds with embedded options: Callable bonds,
convertible bonds, valuation models, option‐adjusted spread, Active portfolio strategies, Bond
indexing, Passive portfolio strategies, mortgage pass‐through securities, collateralized mortgage
obligations, stripped mortgage backed securities, Issuers and collateral of Asset backed Securities,
Special Purpose Vehicles, interest rate derivatives: Bond futures, Interest rate futures, options,
swaps and bond portfolio management applications.

Learning outcomes

At the end of this course students will be able to:
1
A systematic understanding of the role of time value of money in measuring return &
concepts of risk‐free return, required returns and the calculation and application of
holiday period return extension of compounding, calculation of future value of an
annuity and the calculation of yield.
2 Application of different methods and techniques to measure risk and portfolio
objectives and procedures used to calculate portfolio return and standard deviation.
3 A systematic understanding of the Capital Asset Pricing Model (CAPM) conceptually,
mathematically and graphically, calculate portfolio betas and analyse the risk‐return
trade off.
4 A critical understanding of investment attributes of bonds
5 A detailed knowledge and ability to communicate how bonds are valued in the
market place and basic concept of duration, how it can be measured, and its use in
the management and bond portfolios
6 Ability to communicate essential features of options and futures contracts

Indicative content

Liquidity needs with short term investments: Investment process & types of Investments
 Securities market & their regulations
 Investment information and securities transactions
 Risk & return ; the concept of return, measuring returns and risks &combing risk and return,
calculation of future value of annuity & present value of a stream of returns
 Modern portfolio concepts, portfolio return & standard deviation, correlation and
diversification
 The capital Asset Pricing Model, betas: a measure of undiversifiable risk, using beta to
estimate return, the security market line,
 Modern portfolio theory, the efficient frontier, calculation of portfolio beta, the risk‐return
trade off.
 Characteristics of common stocks, stock spin‐offs, stock splits, treasury stock & classifies
common stock & common stock dividends
 Analysing common stocks: economic analysis, industry analysis, analysing the balance sheet &
fundamental analysis & financial ratios measuring liquidity & profitability
 Stock valuation models.
 Market efficiency and behavioural finance: the efficient market hypothesis(EMH) &
challenges to EMH &Technical analysis review of charted financial analyst (CFA) exam
questions on investing in common stocks
 Investment attributes of bonds, the essential features of a bond & distinction among different
types of call, refunding, and sinking‐fund provisions.
 The global nature of the bond, features of convertible securities and measure the value of a
convertible security.
 Bond valuation: the term structure of interest rates and yield curves, the pricing of bonds ,
yield to maturity, yield to call, measuring During, Bond Duration and volatility, and
immunisation
 Mutual funds and exchange‐traded funds,
 Portfolio management
 The basic nature of options in general and puts and calls in particular, how put and call
options are valued, essential features of futures contracts and the trading strategies investors
can use with commodities.
 Future markets and securities, trading in future markets, trading in commodities, financial
futures, hedging other securities

Teaching and learning activity

For this course, there are two hours of lectures and one hour of tutorial per week. Lectures will be
devoted to development of the relevant models and discussion of economic and financial
applications. Regular tutorials (mainly in the lab) will be focused on presenting and reviewing course
materials, problem solving and using statistical software applications. In tutorials, everyone is
expected to take part in the discussions.
Scheduled contact hours:
Note: include in scheduled time:
project supervision,
demonstrations, practical classes
and workshops, supervised time
in studio or workshop,
scheduled lab work, fieldwork,
and external visits.
lectures 48
seminars ‐‐‐‐‐‐
supervised practical sessions
tutorials 24
formative assessment 40
other scheduled time
Guided independent study
Note: include in guided
independent study preparation
for scheduled sessions, follow up
work, wider reading or practice,
revision
coursework 54
Independent laboratory work 44
other non‐scheduled time 90
Placements & year abroad Work placements
Work based learning
Year abroad
Other placement
Total hours (’Should be equal to credit x 10’) 300

Assessment

Examination - 50%
Outcome 1,2 & 3
3000 Words
A closed book exam

Portfolio - 50%
Outcome 1,2,3,4,5 & 6
3000 words
Problem sets are online exercises to assess engagement during the year and to work on feedback to
improve performance during the two terms before the final exam. The integrated patchwork is a series of tasks and activities
built around a theme to be developed by integrating different perspective and approaches.

Pass Mark 40%