Syllabus

Mid-Term
1. Investment and Security Market-Overview:
Investment-Definition, Forms of Investment, Investment
Alternatives, Importance in career development and Setting of
Investment Objectives, Market Environment, Market Functions
and Organization of Primary Market and Secondary Market, Short
Position, Hedging & Arbitrage.

2. Investment and Market Performance

Risk and Return-Definition, Classification, Components, Measures
and Measurement. Stock Index: Definition,
Construction-Methods.
 Syllabus

3. Analysis of Equity Securities

Fundamental Analysis:
Introduction, Tow-Down Approach to the Valuation of Firm
(Equity): Analysis of Economic Activity, Analysis of Industry
Activity and Analysis of Company’s Financial Performance through
Financial Statement Analysis.
Technical Analysis:
Assumption, Technical Trading Rules & indicators, and Indicators.
Quantity Analysis: Pricing of Equity Securities
Introduction, Methodology of Pricing, Factor influencing the
pricing of equity securities; and practice and trading strategies.
 Syllabus

4. Bond Market and Bond Valuation

Introduction; Features, Classification, Measures of Corporate
Bond’s Return, Pricing of Bond, and Macaulay’s Duration.

5. Investment in Real Assets

Introduction, Advantages and Disadvantages of Real Assets, Real
Estate as an Investment, Financing of Real Estate, and Forms of
Real Estate Ownership.
 Syllabus

Final Term
6. Portfolio Management
Introduction, Definition, Phases of Portfolio Management.
Portfolio Management Model-setting Objective, Policies and
States of Portfolio management.
7. Portfolio Analysis
Definition, Objectives, Process, and Statistical Measures used in
Portfolios.
8. Theories of Portfolio
Capital Assets Pricing Model, Arbitrage Pricing Theory, Markowitz
Portfolio Selection Model.
 Syllabus

10. Framework for Evaluating Portfolio Performance

Framework, Need for Evaluation, Models for judging portfolio
performance and their usage.

Text Book
1. Investments (Analysis and Management)– Charles P.Jones
2. Security Analysis and Portfolio Management- S. Kevin
3. Fundamentals of Investment Management – Geoffrey A. Hirt,
Stanley B. Block
Reference Book
1. Analysis of Investment & management of Portfolios- Frank K.
Reilly & Keith C. Brown
 What is Investment?
Saving = Income – Expenditure
Saving: Difference between income and expenditure; Sacrificing
present consumption.
Reason of saving: higher level of future consumption
oInvestment:
o What we do with the savings to make them increase
over time is investment.
S = I; S=Savings and I= Investment

o The commitment of funds to one or more assets that will be

held over some future period – Jones
o the commitment of current funds in anticipation of receiving
a larger future flow of funds – Hirt and Block
What is Investment? (Cont.)

Investment:
o Current commitment of dollars for a period of time in
order to derive future payments that will compensate
the –
(1) Time the funds are committed,
(2) Expected rate of inflation, and
(3) Uncertainty of the future payments.
(Reilly and Brown)
Forms of Investment

❑ Real Assets:
-Real estate
- Gold
- Silver etc.

❑Financial Asset:
- Direct equity claims
- Indirect equity investment
- Creditor claims
- Preferred stock
- Commodity futures

Which asset to hold?

Hirt and Block
Setting Investment Objective
Risk and safety principal
-Conservative investor-money market funds
-Aggressive investor-bond and stocks
- Extend of Diversification of risk
-Age and economic situation
Current income versus Capital appreciation
- Current income
-high yielding and mature firms
-Capital gain
-Smaller and emerging firms
-Trade off between income and growth

Hirt and Block

Setting Investment Objective (Cont.)

Liquidity consideration
-Degree of liquidity
-Transaction cost/commission is used to measure liquidity
-Investors’ own situation to assess the need of liquidity
Short versus long-term Orientation
-Traders vs. investors
-Short and long-term orientation for fund management
and performance
- High commission charge of traders
- Endorsed strategy- long-term (?)
Setting Investment Objective (Cont.)

Tax factors
- High tax bracket
-Municipal bonds, real estate, investment provide tax credit,
capital gain.
-Low tax bracket
-dividend
Ease of Management
-Determining Time and effort
-Trader vs. long-term perspective
-Considering Opportunity cost for personal portfolio
-Decision depends on trade-off between work and leisure
Retirement and Estate Planning Consideration
- Effect of investment decision on retirement and
estate
Market Environment

Market:

Means, infrastructure, arrangement through which –

- buyers and sellers are brought together
- transfer of goods and/or services.

Reilly and Brown

Market Environment (Cont.)

Characteristics of a good Market: [Reilly Brown]

- Timely and accurate information
- price and volume
- Bid and ask prices
- It is liquid: quick buying and selling
- price continuity: close to previous price. Requires -
- depth: Demand pressure to change price
- Low Transactions cost : For internal efficiency
- cost of reaching the market,
- brokerage costs, and
- cost of transferring the asset.
- Prices rapidly adjust to new information: External Efficiency

Reilly and Brown

Market Environment (Cont.)
Types of Market:
Primary/New Issue market:
- Selling new shares, bonds etc.
- Acquiring new capital
Secondary capital market:
- Trading in outstanding issues
- Trading of securities already sold to the public
- Issuing firms do not get sales proceeds
Over – the – counter market:
- Process of trading securities via Broker-dealer network
-Securities might not meet membership requirements;
-Non-listed or delisted securities
- Registered dealer make the market

Reilly and Brown

Market Environment (Cont.)

Third market:
- OTC trading of listed shares
-Non member investment firms make this market
-Trades well known stocks
- It is critical during the periods when trading is not
available due to suspension or exchange is closed.
Fourth market:
- Direct trading of securities between two parties
- parties involved are institutions
- no broker intermediary, no charges

Reilly and Brown

Market Environment (Cont.)
Other forms of market:
- Spot market
-Future market
-Option market
Market Environment (Cont.)

Functions of Financial Market:

- Facilitating collection of new capital
- Facilitating trading of existing stocks among
investors
- Simplifying payment mechanism.
- Borrowing and lending
- Pooling risks
Market Environment (Cont.)
Organization of Primary Market (IPO):

Stock
Issuer SEC
Underwriter Exchanges

Hirt and Block

Market Environment (Cont.)
Organization of Secondary Market:

Stock
Broker
Exchanges

Consolidated Dealer
Tape

- Dual listing and trading

- Collate real-time
exchange-listed data

Hirt and Block

Market Environment (Cont.)
Functions of Primary Market:
-Origination: Investigating, analysis, and processing of new
issue proposals -
-Time of floating new issue
-Type of issue
-Price of issue
-Underwriting:
-Distribution:
-Public issue
-Rights issue
- Private placement

S. Kevin
Market Environment (Cont.)

Functions of Secondary Market:

- Shifting ownership for existing securities
- Inducing investors to acquire new issues
- Providing marketability for long-term investment
- Reducing the personal risks incurred by the investors
- Broadening supply of equity and long-term debt
capital
Position, Arbitrage, Hedging

Positions:
Quantity of the instrument that an entity owns or owes.
Types of Positions:
Long position:
Willingness to buy assets or contracts in future
Benefits from increase in price
Short position:
Willingness to sell assets or contracts in future
Short position benefits from a decrease in the prices of
assets or contracts
Position, Arbitrage, Hedging (Cont)
-Arbitrage means taking advantage of a price difference
between two or more markets.
-Arbitrage equilibrium, or arbitrage-free
market.
-Arbitrage equilibrium is a precondition for a general
economic equilibrium
Position, Arbitrage, Hedging (Cont)
Conditions for Arbitrage
-Same asset not sold at the same price on all markets
(Absent of "the law of one price").

-Assets with identical cash flows not sold at the same price.

- Asset with a known price in the future not sold at its future
price discounted at the risk-free interest rate today.
Conditions for Arbitrage
Hedging:
- Taking off-setting positions
- Position that is taken as a temporary substitute for a
later position in another asset/liability to protect value
of an existing position in the same until the position is
liquidated
Markets: Rules and regulations
In Bangladesh:
1.Securities and Exchange Ordinance, 1969 (XVII of 1969)
2. Trading Right Entitlement Certificate (TREC) Regulations 2013
3. Listing Regulations
4. The Exchanges Demutualization Act 2013
5. Corporate Governance Code
6. Settlement Regulations
7. Settlement Guarantee Fund Regulations 2013
8. Short-Sale Regulations 2006
9. Investors Protection Fund Regulations
10. Margin Rules – 99
11. TREC Holder Margin Regulations
12. Board and Administration Regulations
13. Other Securities Related Laws.