This module extends MA1801 Finance I (Financial Markets and Corporate Financial Management) and focuses on financial markets, investments and instruments. The key topics include investment risk/returns, portfolio analysis, capital asset pricing model (CAPM) and arbitrage pricing theory (APT), Efficient Market Hypothesis (EMH), equity dynamics and valuation, bond valuation (e.g. duration analysis, term structure determination and yield spreads), and interest rate and credit risk analysis.         

Prerequisite Module: MA1801 Finance I: Financial Markets and Corporate Financial Management

On completion of this module students should be able to;

1. Critically interpret and assess portfolio theory, risk and return;
2. Evaluate asset pricing model/theory, common factor models and performance measures;
3. Assess equities dynamics and evaluate equity valuation techniques and risk analysis;
4. Evaluate and compare the features of fix-income instruments such as bonds and implement bond valuation techniques, duration analysis and yield spreads;
5. Justify the concept of interest rate and credit risks and estimate and assess them by applying basic analysis techniques.

22 fifty-minute lectures. Some handouts will be provided in hard copy or via Learning Central, but students will be expected to take notes of lectures.

Students are also expected to undertake at least 50 hours private study including preparation of worked solutions for tutorial classes.

Skills:

Abilities to apply asset pricing models in real cases and fundamental understanding of portfolio theories as well as return & risk; evaluation skills to valuate equities and bonds; Analytical skills for risk analysis.

Transferable Skills:

• Numerical analysis skills
• Modelling skills
• Critical thinking
• Problem solving skills
• Collaborative skills
• Time management

The first element of summative assessment is by means of a short essay (1000 words) on a specific topic. This weights 20% of the overall assessment. The word counting has +/- 10% flexibility without affecting the marks given on the written piece. Group written feedback will be provided to students on their work through Learning Central.

The major component of summative assessment is the written examination (80%) at the end of the module.  This gives students the opportunity to demonstrate their overall achievement of learning outcomes.  It also allows them to give evidence of the higher levels of knowledge and understanding required for above average marks.

The examination paper has two sections of equal weight.  Section A contains a number of compulsory questions of variable length but normally short.  Section B has a choice of two from three equally weighted questions.

• Investment Risk and Returns
• Portfolio Theory
• Capital Asset Pricing Model (CAPM)
• Common Factor Models (including momentum) & Performance Measurement (Sharpe Ratio etc., Asset allocation)
• Arbitrage pricing theory (APT)
• EMH
• Equity Valuation
• Bond Valuation
• Interest rate risk and Credit risk
• Financial derivatives as investment vehicles

Hillier, D. & Ross, S.A. 2013. Corporate finance. 2nd European ed. McGraw-Hill Higher Education

Brealey, R.A. et al. 2016. Principles of corporate finance. 12th ed. McGraw-Hill.

Luenberger, D. 2009. Investment science. Oxford UP.