ICM108-Fixed Income and Equity Investments

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Autumn term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Current from: 2019/0

Email: m.marra@icmacentre.ac.uk

Type of module:

Summary module description:

Fixed Income and Equity Investments applies general valuation methods to specific financial instruments: fixed income and equity securities. It describes the basic characteristics of each security and develops practical strategies for finding its value and assessing its risk. It develops general trading strategies for each type of security. It also considers how the markets for these securities are related and begins the task of showing how these relationships can be exploited to form an optimal investment strategy.

Aims:

Fixed Income and Equity Investments deals with the valuation of fixed income and equity securities. The module focuses on the basic characteristics of each security and the strategies used for approximating their fundamental value and assessing their risk. Its primary aim is to discuss how certain characteristics and relationships can affect the value of fixed income and equity securities and how can they be exploited to form optimal investment strategies. The analytical techniques introduced in this module are widely applied in other elements of the programme.

Assessable learning outcomes:

Assessable learning outcomes (fixed income):

Apply time value of money in calculating security values; recognize the basic characteristics of debt securities, calculate prices and yields for fixed income securities; interpret credit ratings and describe how credit risk is affected by restrictions contained in the bond indentures; derive zero-coupon yields from bond prices and calculate the forward rates associated with those yields; define, construct and apply duration-based measures of interest rate risk; understand the difference between interest rate risk and credit risk; comprehend the main features of active and passive bond management strategies.

Assessable learning outcomes (equity investments):

Relate macroeconomic policy and leading economic indicators to security returns; apply basic microeconomic analysis in assessing the market prospects of industries and individual firms; use financial statement information to construct financial ratios relevant to security selection; use the cash flow, dividend discount models as well as market multiple techniques to value equities; describe the key ingredients of behavioural finance and technical analysis in equity selection; apply technical rules to assess potential equity price movements.

Additional outcomes:

The student will develop familiarity with sources of financial market data and gain experience in manipulating and analysing this data in ways closely related to market practice. The student will learn to relate economic news to price changes in financial markets. The seminars and discussion board will provide students with an opportunity to propose and defend explanations for the observed behaviour of investors, traders and market intermediaries and the resulting pattern of returns on risky assets.

Outline content:

Topic 1: An introduction to securities. BMK Ch. 2, pp. 28 – 41. Applying time-value-of-money (TVM) and

probability theory to value financial instruments.

Topic 2: Bond prices and yields. Introduction to default risk. BMK Ch. 14 pp. 445-486.

Topic 3: Term Structure of Interest Rates. BMK Ch. 15 pp. 487-514.

Topic 4: Interest rate risk. Ch.16 pp. 515–533.

Topic 5: Bond Management. Ch. 16 pp. 534-556. Ch. 23 p. 815-821.

Topic 6: Economic and Industry analysis. BKM Ch 21

Topic 7: Financial Statement Analysis. BKM Ch 23

Topic 8: Equity Valuation I. BKM Ch 22

Topic 9: Behavioural Finance and Technical analysis. BKM Ch 12

Final Exam (70%): Topics 1 - 9.

BMK:

Investments - Global Edition – Apr 2014 - by Zvi Bodie, Alex Kane, Alan J. Marcus

Brief description of teaching and learning methods:

The module combines several teaching and learning methods to help students achieve the stated objectives:

1. Lectures: 2 hour lectures for topics 1-9 (10 lectures)

2. Additional readings provide current and applied examples of the topics.

3. Tutorial: discussions are based on non-assessed coursework set by the instructors. Some seminars are

based on case study type exercises

4. Discussion board: The Blackboard LMS may be used to maintain a discussion board relating to the module where the instructors would post discussion threads and moderate the forum.

Summative assessment- Examinations:

One Final Written Examination (Multiple-choice questions exam of 3 hours length)

Summative assessment- Coursework and in-class tests:

Two group assignments (one for Fixed Income, one for Equity Investment)

Formative assessment methods:

Penalties for late submission:
Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx

Assessment requirements for a pass:
50% weighted average mark

Reassessment arrangements:
By examination only as part of the overall examination arrangements for the MSc programme.

Additional Costs (specified where applicable):
1) Required text books:
2) Specialist equipment or materials:
3) Specialist clothing, footwear or headgear:
4) Printing and binding:
5) Computers and devices with a particular specification:
6) Travel, accommodation and subsistence:

Last updated: 16 December 2019