Module Information

Module Identifier
AC30420
Module Title
Investments and Financial Instruments
Academic Year
2016/2017
Co-ordinator
Dr Yizhe Dong
Semester
Semester 2 (Taught over 2 semesters)
Pre-Requisite
AC10710
Pre-Requisite
AC12220 or equivalent

Course Delivery

Delivery Type Delivery length / details
Lecture 10 x 2 Hour Lectures
Seminar 5 x 1 Hour Seminars
Practical 10 x 1 Hour Practicals
 

Assessment

Assessment Type Assessment length / details Proportion
Semester Exam 3 Hours   Unseen written examination  80%
Semester Assessment 1.5 Hours   Test  20%
Supplementary Exam 3 Hours   Unseen written examination  Repeat Failed Element or equivalent  80%
Supplementary Assessment 1.5 Hours   Test  Repeat Failed Element or equivalent  20%

Learning Outcomes

On successful completion of this module students should be able to:

Describe, explain and illustrate: the characteristics, attributes, uses, valuation, behaviour, trading and development of key investment instruments; the investment problem and investment decision making; and investment risk management.

List, describe, explain, illustrate, compare and contrast alternative investment instruments; perspectives on and measures of return/yield and risk; approaches to investment asset pricing; and types/forms of market efficiency.

Cite, explain, select and apply appropriate theory and models to solve related questions and numerical problems.

Derive, assess and criticize selected investment theory models.

Integrate different forms of analysis in order to generate a well-reasoned and holistic assessment of investment and risk management opportunities.

Aims

This module is a core module to School of Management and Business N400 (Accounting and Finance) and N310 (Business Finance) UG degrees; core to the Accounting and Finance "major", "minor" and "joint"; and core to the IMAPS degree G1N3 (Financial Mathematics).

The module covers topics in investment analysis, portfolio selection, fixed income and risk management which are essential subject matter within any high-quality undergraduate degree in accounting and/or finance; and which are expected by:

  • Honours Degree Subject Benchmark Statement: Accounting (2007), Quality Assurance Agency for Higher Education
  • Honours Degree Subject Benchmark Statement: Finance (2007), Quality Assurance Agency for Higher Education
Further, the module contributes to the maintenance of (or is anticipated to contribute to the achievement of [further]) accreditation from professional accountancy bodies, including:

  • Institute of Chartered Accountants in England and Wales
  • Association of Chartered Certified Accountants
  • Chartered Institute of Management Accountants
  • Institute of Chartered Accountants of Scotland

Brief description

This module aims to provide students with a thorough treatment of: (i) the characteristics, attributes, uses, valuation, behaviour, trading and development of key investment instruments; (ii) the investment problem and investment decision making; and (iii) investment risk management. From a foundation in theory, we use discursive and numerical approaches to unlock this fascinating area. The themes of value, return and risk run throughout the module.

Content

Topics to be covered, with provisional timings:

1. Review of essential statistics [week 1]

2. Equity securities and portfolio theory [weeks 2-5]

  • Equity return measures
  • The link between accounting returns and market-based returns
  • Total risk measure
  • Risk-return paradigm, risk aversion, dominance
  • Combining risky assets, the Markowitz frontier
  • Risk free asset, capital market line, market portfolio
  • Risk-averse investor portfolio choice
3. The capital asset pricing model and the arbitrage pricing theory [weeks 6-8]

  • Systematic risk measure, diversification
  • Assumptions and derivation of the CAPM, security market line
  • Determination and stability of beta
  • Wider CAPM-family models
  • Arbitrage pricing model assumptions and factors
  • Principle of arbitrage, arbitrage portfolio and arbitrage action
4. Market efficiency [week 9-10]

  • Different facets of market efficiency
  • Informational efficiency and the efficient markets hypothesis
  • Testing the different forms of the EMH
  • Anomalies
  • Behavioural finance
5. Review of essential present value calculations [wek 11]

6. Fixed income securities [weeks 12-14]

  • Characteristics and risks
  • Yield measures
  • Valuation
  • Value sensitivity to rate changes
  • Bond portfolio immunization
7. Term structure of interest rates [week 15]

  • The yield curve
  • Pure expectations theory
  • Liquidity preference theory
  • Market segmentation theory
8. Derivative instruments [weeks 16-18]

  • Why "derivative", underlyings, derivative types and classification
  • Derivatives usage
  • Option payoff diagrams, binomial diffusion diagrams
  • Assumptions and derivation of the binomial optional pricing model
  • Valuation of options by the binomial method
  • Valuation of options by the Black Scholes method
  • Derivation of the put-call parity relationship
  • Forwards, futures, swaps, credit default swaps and warrants
  • Derivation of the interest/exchange rate parity relationship
9. Process: financial innovation and trading [week 19]

  • Innovation in financial instruments
  • Trading and market microstructure

Module Skills

Skills Type Skills details
Application of Number * Develop an easy familiarity with numerical data sources and numerical data * Apply numerical data to problem solving with care and accuracy * Assess the reasonableness of and interpret numerical solutions * Support assertions/arguments with appropriately developed and presented numerical data * Calculate and use descriptive statistics * Apply complex mathematical formulae
Communication * Develop confidence in and clarity of oral communication via example class/tutorial participation * Develop clarity and focus of written communication via development of answers to self study questions * Develop and use appropriate subject-specific vocabulary in oral and written communication
Improving own Learning and Performance * Identify and distil the key issues covered by lectures, tutorials and self study * Identify and use a range of learning resources * Investigate benefits of small group working on self study * Structure study to accommodate intensive learning
Information Technology * Use a variety of electronic web- and library-based resources to review available information and retrieve pertinent information * Use spreadsheet software to complete elements of the self study (e.g., for ease of tabulated numerical calculations, production of summary statistics, production of graphs, etc.)
Personal Development and Career planning * Develop skills in investment analysis, portfolio selection and risk management which are useful/essential in a number of different occupations; and in personal financial planning and management * Identify a variety of potential career opportunities within the financial and professional services sector
Problem solving * Identify the precise problem to be solved * Assess which data are pertinent to the problem * Recognize that alternative solution methods might be available * Select and apply appropriate methods for solving the problem * Assess the reasonableness of problem solutions and interpret those solutions
Research skills * Identify which information sources are available to: facilitate module study (understanding, wider reading); and provide data which allow application of module learning in a real world context * Properly reference/attribute information sources
Subject Specific Skills * Develop competence in understanding and appropriately applying investment/financial mathematics * Develop competence in understanding and quantifying return/yield and risk; in analyzing the relationship between return and risk; and in managing risk
Team work * Develop experience of team work and develop team working skills via small group working on self study

Notes

This module is at CQFW Level 6