Financial Markets C31FM Week 11 – Revision FINAL EXAM Weight – 80% of the total mark Covers – Weeks 1 to 11 When – 14th December 9.00 – 12.00 2 hours to complete the exam + 1 additional hour for downloading the question paper and uploading your exam responses. General information FINAL EXAM FORMAT & REVISION 4 compulsory questions – 25 marks each Mixed with numerical questions & essay questions Prepare: Lecture notes Tutorial questions Sample exam paper Bodie, Kane and Marcus Investments FINAL EXAM STRATEGIES Time management – 30 minutes per question with many sub-questions! Numerical questions – Make sure your hand writing is clear. o Clearly write down the steps, with appropriate formulas Essay questions – Type your answers. o Consider as a mini-essay with clear structure Introduction, main body, and conclusion Good use of headings Week 1: Introduction to the Financial Markets The roles of financial markets Main types of financial assets Types of investments Equity market indices WEEK 2: RISK, RETURN AND HISTORICAL RECORD The time value of money Interest rates Accumulated investment values vs. present values Investment appraisal tools Holding Period returns Risks Time series analysis of historical records Week 3 – Portfolio Theory Portfolio Risk and Return Risk and risk aversion Utility function Expected return and risk portfolio The Markowitz Model Efficient frontier Choosing an efficient portfolio Week 4: Asset Pricing Models Capital Asset Pricing Model (CAPM) Securities market line (SML) Portfolio risk and return Arbitrage Pricing Theory (APT) Factor models APT vs CAPM Similarities and differences Portfolio Management Investment strategies Week 5 – Security Analysis and EMH Fundamental analysis Financial statements analysis Gordon Growth model; dividend yield; price/earnings ratio Technical analysis Pattern or trend Efficient market hypothesis (EMH) Three versions of EMH Tests of market efficiency Momentum and mean revision Predictors Market anomalies Week 8 – Behavioural Finance Efficient Market Hypothesis (EMH) – continue Interpretation of market anomalies Irrationalities: Information Processing and Behavioural Biases Overconfidence; sample size neglect; presentiveness; loss aversion; regret avoidance; metal accounting. Sentiment Limits to Arbitrage Week 9 – Fixed Income Bonds 1 Introduction to Bonds Different types of bonds e.g., zero-rate coupon; government; corporate; domestic etc. Credit ratings Credit spread & factors affecting “credit spread” Assessing the credit quality Definitions Accrued interest Running yield vs. redemption yield The term structure of interest rates Spot rates, short rates and forward rates Expectations hypothesis Interest Rate Risk Bond pricing relationships Duration and modified duration Definitions Convexity Definitions Immunisation Theory of immunisation Issues with immunisation Index-linked bonds Week 10 – Fixed Income Bonds 2 Week 11 – Performance Measurement Rates of return Money-weighted; time-weighted; linked internal Notional funds Compare the performance of actual fund with a benchmark portfolio Risk-adjusted performance Treynor ratio; shape ratio; Jensen’s Alpha; Information ratio. Limitations of portfolio performance measurement Happy Revision & Good Luck!
