Lahore University of Management Sciences

FINN 353 – Investments

Spring 2021

Instructor Talha Farrukh

Room No. 421
Office Hours 10:00 to 11:00 (Mondays and Wednesdays)
Email talha.farrukh@lums.edu.pk
Telephone 03323313711
Secretary/TA Sharha Mumtaz/ Taha Arshad & Abdullah Yousuf
TA Office Hours TBA
Course URL (if any) suraj.lums.edu.pk/~ro/

Course Teaching Methodology

• Teaching Methodology: Blend of synchronous (Zoom lectures) and asynchronous (recordings)
• Lecture details: All lectures will be held during class time (unless advised otherwise) and will be uploaded on LMS

Course Basics
Credit Hours 3
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 75 minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week 0 Duration
Tutorial (per week) Nbr of Lec(s) Per Week 0 Duration

Course Distribution
Core -
Elective Yes
Open for Student Category SDSB(Juniors & Seniors), ACF-Senior & Junior in Phase II
Close for Student Category

COURSE DESCRIPTION
An introductory course in the analysis of investments and portfolio management. The course examines various investment
opportunities available in modern financial markets, functioning of securities markets, diversification concepts, asset pricing
models, analytical techniques for valuation of stocks and fixed income securities using fundamental and technical analysis,
portfolio construction and evaluation, and introduction to derivative securities. Central to the investment selection and
management process is the notion of portfolio diversification. We will consider how investors allocate their funds by forming and
managing portfolios containing stocks, bonds, mutual funds, and alternative investment products. Students are also introduced to
the major portfolio management strategies and investment styles pursed by professional investors. An investment game will be
played to give students a better understanding of trading strategies and portfolio management. The course focus is on application
of theory to the practice of investment management.

COURSE PREREQUISITE(S)
FINN 100 Principles of Finance
 Lahore University of Management Sciences
LEARNING OUTCOMES
Upon successful completion of the course, students should be able to:
Demonstrate understanding of the nature and operations of capital markets and trading of securities and other
investment vehicles.
Demonstrate understanding of the theoretical underpinnings of investment analysis and portfolio concepts within
the context of modern portfolio theory and its extensions.
Demonstrate understanding of procedures involved in analyzing investment alternatives under conditions of
uncertain outcomes.
Demonstrate application of empirical evidence, theoretical constructs, and insights from practice to manage
investments.
Demonstrate understanding of the alternative methodologies to evaluate portfolio performance.
Demonstrate knowledge of derivative markets and instruments with special attention to their application in
managing portfolio risk.
Present and defend their analysis effectively, both in oral and written forms, while working in teams as well as
independently. (General Learning Goal)

UNDERGRADUATE PROGRAM LEARNING GOALS & OBJECTIVES

General Learning Goals & Objectives
Goal 1 –Effective Written and Oral Communication
Objective: Students will demonstrate effective writing and oral communication skills
Goal 2 –Ethical Understanding and Reasoning
Objective: Students will demonstrate that they are able to identify and address ethical issues in an organizational
context.
Goal 3 – Analytical Thinking and Problem Solving Skills
Objective: Students will demonstrate that they are able to identify key problems and generate viable solutions.
Goal 4 – Application of Information Technology
Objective: Students will demonstrate that they are able to use current technologies in business and management
context.
Goal 5 – Teamwork in Diverse and Multicultural Environments
Objective: Students will demonstrate that they are able to work effectively in diverse environments.
Goal 6 – Understanding Organizational Ecosystems
Objective: Students will demonstrate that they have an understanding of Economic, Political, Regulatory, Legal,
Technological, and Social environment of organizations.

Major Specific Learning Goals & Objectives

Goal 7 (a) – Program Specific Knowledge and Understanding
Objective: Students will demonstrate knowledge of key business disciplines and how they interact including
application to real world situations.
Goal 7 (b) – Understanding the “science” behind the decision-making process (for MGS Majors)
Objective: Students will demonstrate ability to analyze a business problem, design and apply appropriate
decision-support tools, interpret results and make meaningful recommendations to support the decision-maker

GRADING BREAKUP AND POLICY

Quiz(s) and Take home assignments 30%: Several announced quizzes will be given on the assigned material during the term. No make-
up quizzes will be given. However, the lowest quiz grade including a zero for a missed quiz will be disregarded. No sharing of
calculators, or any help sheet will be allowed.
 Lahore University of Management Sciences
Attendance and Class Participation: 10% (3% & 7% respectively)
• Students are expected to attend all scheduled classes. If you are not present at the beginning of a class (with zero grace
period) or leave class during the session, without instructor’s prior permission, you will be considered absent for the day. There
will be a class whatsapp group. Class participation will be mainly marked for discussions in the zoom sessions and partially for
student contribution the class whatsapp group.

• Students must review the assigned materials in advance of the class in order to contribute meaningfully to class discussions. A
significant portion of the course grade depends on the quality and level of your involvement and input in class discussions.
Students are encouraged to give real world examples in their class participation.

• It is understandable that during the semester, one might end up having to skip a class or two due to various reasons
including family commitments, interviews, not feeling well, just oversleeping or clashes during the add/drop period. Keeping
this in mind, you are allowed to miss 5 classes during the semester without having to provide any documentation etc.

• Students lose one percentage point from the overall course grade for the 6th & 7th absence, one percentage point each
for any further absences (up to a maximum of 3 percentage points).

Group Project:30%
Students are required to form teams of 3-4 students (depending on class size) by session 4 for group tasks. (i) Investment Game:
Each group will be entrusted with the same amount of initial investment and will be asked to manage a portfolio of stocks on behalf
of a client for a certain amount of time. Portfolio performance will be evaluated on the basis of total return at the end of the game.
Deliverables will be Investment Policy Statement, brief Technical and Fundamental Analysis of the stocks purchased and Portfolio
Evaluation Report (ii) Money Masters Report: Multiple teams will be assigned an investment “guru” from the Money Masters to
prepare a brief writ-up and be ready for a presentation on the assigned person as per the class schedule. The presentation should
focus on the investment strategies, investment insights (Dos and Don’ts of investments), including key personal traits. Students are
encouraged to use the Internet to obtain more current information.

Final Examination: 30%.

The examination could be mix of MCQ short exercise and short explanations. Students may also expect a question or two from the
assigned report or a case or a situation analysis.

Calculator Requirement: You will need a financial calculator capable of performing present value/future value functions. For
example, Texas Instrument BA II meets these criteria. Many other brands are equally suitable for this course.

EXAMINATION DETAIL

Yes/No: No
Combine Separate: N/A
Midterm
Duration: N/A
Exam
Preferred Date: N/A
Exam Specifications: N/A

Yes/No: Yes
Final Exam Combine Separate: Combined
Duration: TBA
Exam Specifications: Mix of MCQ and descriptive with calculations
 Lahore University of Management Sciences

COURSE OVERVIEW
Week/
Recommended Objectives/
Lecture/ Topics
Readings Application
Module
Session 1 • Investments: Backgrounds and Issues Overview of investment
• Asset Classes and Financial Instruments • BKM Ch 1,2 environment, type of financial
markets, and introduction to the
portfolio construction process.
Session 2 • Asset Classes and Financial Instruments: Examine the various asset
Stock and Bond Market Indexes • BKM Ch 2 classes, instruments, and
understand the use and
construction of market indexes.
Session 3 • Functioning of Security Markets and Review the functioning of
Trading Mechanisms • BKM Ch 3 financial markets and its key
players.
Session 4 • Functioning of Security Markets and Understand the trading practices
Trading Mechanisms • BKM Ch 3 in stock exchanges and
mechanics of buying on margin
and short selling.
Session 5 • Mutual Funds and Other Investment • BKM Ch 4 Examine the benefits of investing
Companies through investment companies,
classification of mutual funds by
objectives and styles, fee
structures, and performance.
Session 6 • Mutual Funds and Other Investment • BKM Ch 4 Review the mutual funds industry
Companies – Pakistani Context of Pakistan. Overview of the
portfolio management process.
Session 7 • The Investment Management Process • BKM Ch 28 Learn to develop Investment
• Case Study Policy Statement (IPS) for
individual and institutional
investors.

Session 8 • Macroeconomic and Industry Analysis • BKM Ch 17 Analyze the effects of

Session 9 • Macroeconomic and Industry Analysis –
Applications of Fundamental Analysis
Session 10 • Equity Valuation – Discounted Cash Flow
Models
Session 11 • Equity Valuation – Other Valuation
macroeconomic and industry
factors on firm performance and
industry earning prospects over
time.
• BKM Ch 17 Understand the relevance of
macroeconomic and industry
factors in fundamental analysis –
the Top-Down approach.
• BKM Ch 18 Apply discounted cash flow
• Case Study models and alternative
approaches to value securities.
• BKM Ch 18 Examine relative and other
 Lahore University of Management Sciences
Approaches security valuation
methodologies.
Session 12 • Risk and Return: Past and Prologue • BKM Ch 5,6 Review historical risk-return
• Efficient Diversification relationship, modern portfolio
theory, and estimation of risk
measures.
Session 13 • Diversification and Portfolio Risk • BKM Ch 6 Develop understanding to
• Single Index Model and Beta Estimation construct optimal portfolios, and
use index models to analyze risk
characteristics of securities and
portfolios.
Session 14 • Capital Asset Pricing and Arbitrage • BKM Ch 9 Understand the implications of
Pricing Theory capital market theory for asset
pricing, use security market line,
APT and multifactor models to
identify mispriced securities.
Session 15 • The Efficient Market Hypothesis (EMH) • BKM Ch 11 Review empirical evidence that
supports and conflicts with the
efficient market hypothesis.
Session 16 • EMH Implications for Portfolio Strategies • BKM Ch 11 Evaluate the implications of EMH
for portfolio management
strategies.
Session 17 • Behavioral Finance • BKM Ch 12 Review the behavioral finance
critique of standard finance and
its relevance for investments.
Session 18 & • Technical Analysis – Momentum Trading • BKM Ch 12 Overview of technical analysis
Session 19 tools and mechanics of
momentum trading.
Session 20, Group Presentations (in Groups
21 & 22 of 4 students)
Session 23 • Bond Prices and Yields • BKM Ch 14 Develop understanding of the
bond markets, pricing and yield
determination, and how different
bond features impact bond
yields.
Session 24 • Managing Bond Portfolios • BKM Ch 16 Analyze bond features impacting
price sensitivity to interest rates
using duration and convexity
measures.
Session 25 • Portfolio Performance Evaluation • BKM Ch 24 Understand various risk-adjusted
measures to evaluate
performance and decompose
portfolio return into components
attributable to asset allocation
and security selection.
Session 26 • Globalization and International Investing • BKM Ch 25 Examine the benefits and risks of
international portfolio
investments with special
reference to emerging markets.
 Lahore University of Management Sciences
Textbook(s)/Supplementary Readings
Required Text:
th
Bodie, Kane, and Marcus, Essentials of Investments, 10 Edition, McGraw Hill, 2013. (BKM)
• Selected readings from The Money Masters and The New Money Masters by John Train, 1980 and 1989, respectively.

Other Reference Books:

th
• Reilly, Frank and Brown, K., Investment Analysis and Portfolio Management, 8 Edition, Thomson South-Western, 2006. ( RB -
selected chapters only)
th
• Malkiel, Burton, A Random Walk Down Wall Street: The Time Tested Strategy for Successful Investing, 10 Edition, W. W. Norton
& Company, 2012.

Supplementary Readings:
• Students are encouraged to read financial publications such as The Wall Street Journal, Financial Times; Business Recorder to stay
abreast of developments related to this course.
• Supplemental readings in the form of notes or articles on investments with practical and topical applications may be posted on
the course website from time to time.