This page is UNDER CONSTRUCTION. Assignments for Fall 2013 will be posted one week before the start of fall classes. This page is updated frequently. Please refresh your browser window when viewing. Note that attendance is required on Aug 20, Oct 22, Dec 3 and Dec 10. Week 1: Aug 20. Chapter 1: The Investment Setting and Chapter 2: The Asset Allocation Decision. Assignments: 1. Review the Course Syllabus. Make sure you understand all the course policies, especially how grades are determined and the CC&P (Class Contribution and Professionalism) policy. 2. Read Chapter 1. Complete Questions 1, 3, 5, 7, 9 and 11 and Problems 3 and 5d. Compute the arithmetic and geometric mean returns for the returns series in Problem 3 in Appendix 1. 3. Download the Geometric Returns spreadsheet to practice calculating total and average annual compound returns. (Note that students will have to be able to solve these types of problems on exams using only hand-held calculators.) 4. Read Chapter 2. Complete Questions 1-5. For #5, it’s not necessary to write a complete policy statement, just indicate how your personal risk score would influence your asset allocation decision between cash, bonds, safer stocks, riskier stocks, etc. Week 2: Aug 27. Chapter 3: Selecting Investments in a Global Setting and Chapter 4: Organization and Functioning of Securities Markets. Assignments: 1. Read Chapter 3. Complete Questions 1 (except the graphing exercise), 2, 3, 5, and 14. 2. Read Chapter 4. Complete Questions 1, 3, 4, 5, and 10. 3. Read LIBOR Fault-Finding, which explains how the international equivalent of the Fed Funds rate, the London Interbank Offer Rate, has been subject to manipulation by banks for years. 4. Read Clamping Down on Rapid Trades in the Stock Market, which explains the growing practice of high-frequency trading, and regulators’ confusion over what to do about it. 5. Read Facebook Shares Hit New Low, which discusses the dismal performance of Facebook’s stock since its 2012 initial public offering. 6. Watch the following video on the basics of the US Federal Reserve System (a.k.a. “The Fed”). When finished, answer the questions below.
a.) What are the 6 main jobs of US Federal Reserve System? b.) What are the 2 main goals of the Fed’s monetary policy? c.) What was the Fed’s main monetary policy tool before the financial crisis of 2008? d.) Explain how raising and lowering the Fed Funds rate affects consumer and business borrowing and spending and the rate of economic growth. e.) Why did the US Fed feel that it had to create special programs to further shore up the US banking system and the US and world economies? f.) Why are Federal Reserve Board members restricted to serving one 14-year term?
Week 3: Sep 3. Labor Day Holiday. No in-class meetings this week. Chapter 5: Security Market Indexes. Assignments are online. Assignments: 1. Read Chapter 5 (sections 5.1, 5.2, 5.3 and 5.6). 2. Complete Questions 1, 13 and 16 and Problems 1, 6a and 6b. 3. Download the Stock Index Calculations spreadsheet, which will help you calculate the answers to Problems 1 and 6. (Note that students will have to be able to solve these types of problems on exams using only hand-held calculators.) 4. As background preparation for our financial analysis and valuation modules below, skim the following investment policy statements (IPS) from Morgan Stanley, Invesco-1, Invesco-2, Hancock, Northpointe, Goldman Sachs and the Boston Co., all of which focus on the selection of large-capitalization US stocks. Relate the contents of these professional investment policy statements to the IPS readings in Chapter 2. Take brief notes identifying the main similarities among the companies’ approaches to identifying superior stocks. Week 4: Sep 10. Chapter 6: Efficient Capital Markets. Assignments: 1. Read Chapter 6. 2. Complete Questions 1, 2, 3, 10, 14, 15, 16, 17, 18 and 21. (For Questions 2, 3, and 10, it’s not necessary to understand the strict statistical tests of the weak-, semistrong- and strong-form of market efficiency, but rather to understand what type of investing/trading could earn excess returns under each set of conditions and which type of trading/investing could not.) 3.Class Discussion on Market Efficiency (required).Navigate to the discussion web page for BU 979 to watch the Mind Over Money video:BU 979 Discussion. Instructions on how to complete the assignment are contained in the study guide question file: Mind Over Money Study Guide Questions. Bring your Word file and a hard copy of your written answers to class on Sep. 10. Week 5: Sep 17. Chapter 10: Analysis of Financial Statements. We are going to combine textbook Chapters 10, 11 and 12 into an integrated treatment of Financial Analysis and Valuation in the next 3 in-class lectures (Sep 17 & 24 and Oct 1). As we progress through the various metrics, students will code these metrics into the MCD-Performance-Analysis-Template, following the solution in the MCD-Performance-Analysis Model. This assignment is due Fri., Oct. 5 at 5:00 pm. Assignments: 1. Watch the following video, which will orient you to the main idea of the Financial Analysis and Valuation project (use the Full Screen option by clicking on the Full Screen button at the bottom right corner of the video window): 2. Read the first 11 pages of An Introduction to Financial Analysis and Valuation (up to the Profitability section), which presents a financial analysis of MCD, and follow the calculations depicted in the MCD-Performance-Analysis spreadsheet. 3. Download the MCD-Performance-Analysis-Template and bring to all our remaining class sessions on a flash drive so you will be ready to participate in future spreadsheet workshopping lab sessions that will help you complete your project. You can start building this spreadsheet any time -- no need to wait for further instructions. 4. Study the following teaching examples to gain additional familiarity with our analysis and valuation process: Apple, Inc. and Coca-Cola. These readings will help you see the interpretations of the financial metrics in the context of several different companies (besides the MCD vs. YUM case study I will present in class). 5. Complete the Margins, Relative Profitability, and Liquidity and Debt sections of the MCD Performance Analysis Template. Check your answers with the Performance Analysis Model solution provided above. Download the Financial Analysis Lecture Notes.
Week 6: Sep 24. Chapter 11: Introduction to Security Valuation. Assignments: 1. Read through page 22 of the Introduction to Financial Analysis and Valuation notes. 2. Study the DuPont Analysis of ROA and ROE handout and the examples in the Equity Multiplier Example spreadsheet. 3. Complete the Profitability, Capital, NOPAT & FCF, Cost of Capital and Value Creation sections of the MCD Performance Analysis Template. Check your answers with the Performance Analysis Model solution provided above. 4. Turn in your completed MCD Performance Analysis Template for grading ASAP, but no later than 5:00 pm Fri., Oct. 5 (via email to firstname.lastname@example.org). Remember the file-naming conventions outlined in the syllabus (if your name is John Smith, the Excel file you submit should be named Smith-J.xlsx). Also remember to delete the password before submitting the file. To remove the password in Excel 2010, open the spreadsheet and navigate to File-Protect Workbook-Encrypt with Password and delete the password in the “Password” entry box. You must then re-save the Excel file for the password to remain deleted. 5. Items 6, 7, 8 and 9 below will form the basis of our Sep 24 in-class discussion: a.)What is the likely direction of the US stock market for the rest of 2012 and first half of 2013? and b.)what matters more for stocks right now, underlying economic conditions or the Federal Reserve’s endless willingness to “ease” credit market conditions? (Of course by “ease” I am referring to the ongoing socialization of the underwater liabilities remaining on the thousands of insolvent balance sheets in the business and banking community.) 6. Watch the 3-minute video below, in which Richard Nomura, Chief Economist at the Nomura Bank Research Institute, argues that because the US is slipping into a Japan-style funk (protracted period of unnaturally low interest rates and essentially zero growth in GDP), the US needs to continue running federal budget deficits to provide the economy with fiscal stimulus, given that the Japan experience has proven that monetary policy is ineffective once interest rates fall to zero. 7. Examine the graph of the Empire Manufacturing Index below, which recently printed at its lowest level since April 2009 (a period when the economy was still contracting). Make sure you understand why the index is flashing a warning signal regarding the future rate of economic expansion. 8. Next examine the table below, which was included in the recent Business Insider article Come Back When There’s a Recession (in which journalist Tom Keene taunts Lakshman Acuthan of the Business Cycle Research Institute for insisting that the US has been in the early stages of a recession for some time). Notice that the table clearly indicates continued growth in four important economic indicators (Industrial Production, Real Income, Employment and Real Sales, although the “growth” in Employment is much weaker than the other indicators), which refutes Acuthan’s recession call: 9. Examine the graph of the S&P 500 Index for the past 3 years. Stocks are supposed to be a forward-looking indicator of the economy. US stocks are at 3-year highs, signaling adequate, and possibly robust, economic conditions for the next 6 to 9 months.
Week 8: Oct 8. Fall Break. No in-class meetings this week. No Assignments. Week 9: Oct 15. Technical Analysis. Assignments: 1. Read Ch. 15 (Sections 15.1-15.4). This reading will provide you with a broad overview of technical analysis. 2. Complete Ch. 15 Questions 1-4, 10-17. Be sure to write your own answers in your own words. Check your answers with the solution file: BU979-Ch15-HW.pdf. 3. Watch the following video to see a real-world example of technical analysis. In the 2nd half of the video below, Oppenheimer technical analyst Carter Worth analyzes trends in MCD’s price. (First half discusses MCD’s product strategy, which is also interesting. Make note of the analyst’s assertion that MCD is delaying the re-launch of the McRib because they’re going to need a boost to 4Q sales.) 4. Watch the following video to see another example of how a real-world technician analyzes a chart for both commodities and stocks. Technical analyst Richard Ross consults his charts and predicts an imminent sharp decline in the price of oil -- and stocks: 5. Read the Technical Analysis Coursenotes handout. This reading will explain the specific technical process we will use for analyzing a stock. Item #6 below explains how you will apply this process to your stock, and the exhibits you need to create for inclusion in your term project. 6. Navigate to StockCharts.com. Enter the ticker symbol of the stock you are analyzing for your project. Save a copy of one daily and one weekly chart (as described in the Technical Analysis Coursenotes). Copy each chart to a separate Excel worksheet. Name the worksheets TICKER-Daily and TICKER-Weekly (if you are studying MCD, the worksheets would be named MCD-Daily and MCD-Weekly). Use Excel’s drawing tools to mark up the chart as shown in the coursenotes. You are expected to apply the 5-step technical process outlined in the coursenotes.Name the file TICKER-TECH-YOUR LAST NAME.xlsx and email to me by Sunday, October 14 (e.g., MCD-TECH-Jones.xlsx). Be ready to make a 5-minute presentation in class explaining your stocks’ technical outlook.
Week 10: Oct 22. Midterm Exam. Attendance is required. Covers Chapters 1, 2, 3, 4, 5, 6, 10, 11, 14 and 15. Assignments: 1. Students are required to create one sheet of notes for the exam. Use an 8 1/2 x 11 sheet of paper. Both sides may be used. Note sheets may be typed or handwritten, but may not contain anything photocopied. Each student must create their own sheet of notes. Students may not use all or part of another student’s sheet. If your sheet is typed, please email it to me before the start of the exam.
Week 11: Oct 29. Chapter 20: Introduction to Derivative Markets and Securities. Assignments: 1. Read Section 22.4 of Chapter 20, Option Trading Strategies. 2. Read the Introduction to Options handout. 3. Write a 1-2 paragraph synthesis of the fundamental and technical outlook for the company you are analyzing for your term paper. Use short sentences and on-point language; grammatically correct bullet points would work well for this exercise. This will be a first draft of the “Investment Thesis” section of the Financial Scorecard worksheet in your company’s spreadsheet. 4. Download the Option Position Examples spreadsheet. Study the similarities between the options positions featured in the textbook chapter and the Introduction to Options handout. Bring a copy of the spreadsheet to class. We will work with the spreadsheet in the lab tonight, identifying option strategies that match your investment thesis from #3 above. 5. Term paper guidelines and due date. The final version of your stock analysis project term papers will be due on Sunday Dec. 2. The deliverables consist of one term paper and one set of PPT slides (for your Dec. 3 presentation). Each paper should have one section on your company’s fundamental analysis, one section on technical analysis, and one section on option strategies that follow from your overall investment thesis. Students should take screenshots from the fundamental analysis spreadsheets provided above (Oct. 1) and the Option Position Examples spreadsheet to create graphs for inclusion in their papers and PPTs. Technical charts should be obtained from StockCharts.com. Approximately 60-70% of the paper should focus on fundamental analysis, 15-20% on technical analysis, and 15-20% on option strategies. Your final paper grade will be mainly determined by the contents of your paper (75-80%), but your presentation on Dec. 3 will also count towards your grade (20-25%). Papers will mainly be graded on content (quality of your ideas), but style (effective use of language and visual attractiveness) will also matter. Week 12: Nov 5. Finish Chapter 20: Introduction to Derivative Markets and Securities. Assignments: 1. The following videos were featured in class on Oct. 29 -- review as necessary. 2. Apple Inc. (AAPL): Investors who are long in AAPL can use call spreads to recoup some of the losses they suffered from AAPL’s recent price decline. 3. Ralph Lauren (RL): Investors can use put spreads to profit from anticipated further price declines. 4. CNBC explains how to profit from expected future volatility using straddles. 5. For this week’s assignment, come to class ready to present at least 2 options strategies that are consistent with the fundamental/technical outlook for your stock that you wrote up last week (item #3 from Oct. 29). Week 13: Nov 12. Chapter 17: Bond Fundamentals and Begin Chapter 18: Analysis and Valuation of Bonds. Assignments: 1. Read Ch. 17 sections 17.1-17.2.3. Answer end-of-chapter questions 1-4 and 8. 2. Read Ch. 18 sections 18.1-18.3.1 and 18.4-18.7.3. Answer end-of-chapter questions 1-5.
Week 14: Nov 19. Thanksgiving Holiday. No in-class meetings this week. Assignments are online. Assignments: 1. Complete the bond pricing and interest rate problems 1-10 (Bond and Interest Rate Problems). I will do a quick check on everyone’s homework at the start of class on Nov. 26. 2. The following spreadsheets will support the calculations required by the problem set: 3.Bond Pricing Yield Duration 4.Zero Coupon Yield Curve Week 15: Nov 26. Finish Chapter 18: Analysis and Valuation of Bonds. Assignments: 1. Complete the bond pricing and duration problems 11-14. 2. Check your answers with the Duration Answer Key. Week 16: Dec 3. Stock Analysis Project Presentations. Attendance is required. Assignments: 1. Stock analysis term paper projects are due Sunday, Dec. 2. 2. This week students give 12-minute presentations on the companies they analyzed. Week 17: Final Exam, Monday, Dec 10, 5:30-7:30 pm. Attendance is required. Here’s the link to Washburn’s Final Exam Schedule in case you need it: Final Exam Schedule