Instructor: Dana Kiku

FIN 411
E-mail: dka@illinois.edu Spring 2014
Office Hours: Wednesday 3pm-5pm
Location: 470E Wohlers Hall
Course
https://compass2g.illinois.edu
WebPage:

Investment and Portfolio Management

This course focuses on the fundamental concepts in investment and portfolio management: risk-return
tradeoff, portfolio optimization, diversification and arbitrage. The objective of the course is to develop
a thorough understanding of the key principals of investment and asset pricing theory and to learn
how to apply them in practice.

Prerequisite course: FIN 300

Course Material

– Required textbook Investments, 10th edition,

by Zvi Bodie, Alex Kane, and Alan J. Markus; McGraw-Hill
The textbook contains assigned readings for the course and practice
problems.

– Recommended Solutions Manual to practice problems in the textbook.

– Course Slides Course slides posted on the course web site have been designed to
accompany the lectures. As a suggestion, you may want to print them
out and bring them to each lecture to ease note taking.

Evaluation
Your grade for the course will be based on two in-class midterm exams, a final exam, an empirical
project and class participation. The course grade is determined as follows:

Grade = 0.05 ∗ Participation + 0.15 ∗ Project + 0.20 ∗ Midterm1 + 0.20 ∗ Midterm2 + 0.40 ∗ Final

All exams are cumulative, closed-books and closed-notes (if needed you will be provided with a
formula sheet; no self-made “cheat sheets” are allowed). All you should bring is writing utensils and a
calculator (no laptops or other electronic devices). To account for any differences in difficulties across
exams, midterm and final scores will be standardized when computing the course grade. I will use a
plus/minus grading scale.

Exam Schedule
Midterm exams will be held during class on:
Midterm 1: February 19, 2014
Midterm 2: March 19, 2014
The date and the place of the final exam are determined by the university and, once announced, will
be posted on the course web page.

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Make-up Policy
There are no make-up midterm exams. Since midterms are in-class and their dates are set in
advance, it is expected that students adjust their schedules (i.e., attending your cousin’s wedding
or job interview are not valid excuses for missing an exam). If you miss a midterm exam and your
absence is not officially excused, then your midterm grade is zero. If you miss a midterm exam and
your absence is excused (eg., serious illness or family emergency evidence of which must be provided),
then the weight of the midterm will be added to the weight of the final exam. In other words, if
you miss one midterm exam with an excused absence, then the final exam will count for 60% of your
course grade (instead of 40%).

Regrading Policy
There are no verbal appeals of grades. You must provide a written statement as to where and why
there is a problem. All regrade requests must be submitted within one week of the class meeting
when the exams are returned. Importantly, the entire exam will be regraded. As a result, the overall
score may increase, remain the same, or decrease, and no subsequent appeals are accepted.

Project
The empirical project is a group assignment to be handed in by a group of 3-4 students enrolled in the
same section. The details of the assignment will be announced later in the semester. You will have at
least two weeks to complete it and it will be due on the last day of classes.

Class Participation
I expect (but not require) you to attend every class, come prepared and participate actively and
voluntarily during lectures. In addition, I reserve the right to cold-call on students, particularly on
those who have not participated in a while.

Class Attendance and Rules

Students are required to attend sections for which they are registered. If you want to switch to
another section, you have to drop your current section and officially enroll in the other. If some
emergency forces you to miss a class, you should obtain my permission to attend another section that
day. Absolutely, no switching will be allowed on midterm days. Students are expected to arrive in
class on time and remain until the class is completed.
All cell phones and electronic devices (including laptops) must be turned off and out of sight during
class (failure to comply with this rule will lead to a negative participation grade and may result in
dismissal from the class).

Academic Integrity
Violations of academic integrity will be taken extremely seriously, and students found cheating in the
course (or helping others to cheat) will be penalized. Student Conduct Code pertaining to Academic
Integrity and Procedure can be found at http://admin.illinois.edu/policy/code.

BIF Emergency Procedures

Because BIF is not a designated tornado shelter, in the event of a tornado warning please seek shelter in the Wohlers Hall basement
or the Armory (the nearest designated University tornado shelters). If a tornado is imminent, the BIF basement stairwells can be
used on an emergency basis. In the event of a fire in BIF, exit BIF and proceed to 141 Wohlers Hall. In the event of threat from
a shooter on campus, lock down the classroom and move to a place of safety within the classroom. If you encounter a suspicious
package, do not touch the package, alert campus security, and refrain from cell phone usage until the situation is resolved. More
detailed information and action instructions are available in the BIF Building Emergency Action Plan.

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Course Outline

1 Markets and Transactions: overview of markets, market indices, transactions and investment
companies
Assigned Reading: Chapters 1.1–1.6, 2.1–2.4, 3, 4, 26.1

2 Rates of Return: measuring returns, return characteristics, historical records, learning from
return data
Assigned Reading: Chapters 5, 6.1

3 Portfolio Choice and Diversification: mean-variance analysis, diversification, systematic and

idiosyncratic risks
Assigned Reading: Chapters 6.2–6.6, 7.1–7.4

4 Capital Asset Pricing Model: concept of equilibrium, CAPM assumptions and implications
Assigned Reading: Chapter 9

5 CAPM in Practice: estimation and testing, empirical evidence, “anomalies”

Assigned Reading: Chapters 8.3, 13.1

6 Arbitrage Pricing Theory: arbitrage, APT assumptions, implications, factor selection

Assigned Reading: Chapters 10, 13.2–13.4

7 Market Efficiency: formulation, predictability and event studies, stylized patterns in asset returns
Assigned Reading: Chapter 11

8 Performance Evaluation: performance measures, style analysis, market timing

Assigned Reading: Chapter 24

9 Forwards and Futures: overview of forward and futures contracts, forward prices and valuations,
hedging and speculation
Assigned Reading: Chapter 22

10 Options: overview of option contracts, put-call parity, hedging and speculation

Assigned Reading: Chapters 20, 21.1-21.4