Fundamentals of Investment
bbsfourth year
Subject Code: FIN 253
Course Title: Fundamentals of Investment
Course No: FIN 253
Nature of Course: Theory & Practical
Full Marks: 100
Pass Marks: 35
Credit Hours: 150
Unit 1: The Investment Environment (LH 8)
Meaning of investment; Types of investment; Structure of investment process; Investmentvehicles: short-term vehicles, common stock, fixed income securities, mutual funds,derivative securities, other investment vehicles; Investment plan: steps in investing,considering personal taxes, investing over the life cycle, investing in different economicenvironment; Meeting liquidity needs: the role of short-term vehicles, investment suitability; Ethics in investing; The investment environment in Nepal.
Unit 2: Securities Markets (LH 12)
Meaning of securities markets; Types of securities markets: primary and secondary markets,broker and dealer markets, alternative trading system; General market conditGlobalization of securities markets: growing importance of international markets, ways toinvest in foreign securities, risk of investing internationally; Securities markets in Nepal:introduction, trading hours and regulations; Basic types of securities transactions: longpurchase, margin trading and short selling.
Unit 3: Investment Information and Securities Transactions (LH 15)
Introduction to online investing; Types and sources of investment information; Marketaverages and indexes: introduction, uses, types and their construction including NEPSEIndexes; Making securities transactions: role of stock broker, basic types of orders, onlinetransactions, transaction costs and investor protection; Recent developments of securitiestransactions in Nepal: online and automation, C-ASBA and DEMAT, OTC transactions, cost oftrading, taxes on capital gains and dividends, credit rating in Nepal.
Unit 4: Risk, Return and Portfolio Management (LH 25)
Concept of return: components of return, importance of return, factors affecting the level ofreturn, historical returns; Measuring return: real, risk-free and required return, holding period return, expected return; Meaning of risk; Sources of risk; Risk of a single asset: standarddeviation, coefficient of variation; Combining risk and return of single asset; Concept oportfolio; Measuring portfolio return and risk; Correlation and diversification; The CapitalAssets Pricing Model (CAPM): components of risk, beta, estimating return using CAPM, thesecurity market line; Traditional approach to portfolio management: Modern portfolio theory:the efficient frontier, portfolio beta, and the risk return trade-off.
Unit 5: Common Stock Fundamentals (LH 10)
Pros and cons of stock ownership; Basic characteristics of common stock: common stock as acorporate security, buying and selling stocks, common stock values; Common stock dividends: the dividend decision, types of dividends, dividend reinvestment plans; Alternativeinvestment strategies.
Unit 6: Common Stock Analysis and Valuation (LH 15)
Principles of security analysis; Economic analysis; Industry analysis; Fundamental analysis:the concept, financial statements, key financial ratios, ROA-ROE interaction, common stockratios; The valuation process; Stock valuation models: the dividend valuation model, otherapproaches to stock valuations, other price relative procedures; Valuing a company; Efficientmarkets and behavioral finance: level of market efficiency, investor behavior and stock prices.
Unit 7: Fixed Income Securities (LH 10)
Meaning and types of fixed income securities; Essential features of a bond: bond interest andprincipal, maturity date, call features, sinking fund, bond ratings; The market for debt securities; Specialty issues; Convertible securities: conversion privilege, conversion value,conversion premium, payback period, investment value. Fixed income securities market inNepal.
Unit 8: Bond Valuation ( LH 15)
The behavior of market interest rate; The term structure of interest rate and yield curve; Thebasic bond valuation model; Measures of yield and return; Duration and immunization: the concept of duration, measuring duration; Bond duration and price volatility; Uses of bondduration measures; Bond investment strategies.
Unit 9: Mutual Fund and Performance Evaluation (LH 10)
An overview of mutual fund; Open end and closed-end fund; Exchange traded funds; Othertypes of investment companies; Types of mutual funds and services; Investing in mutual funds: investor uses of mutual funds, the selection process, investing in closed-end funds,measuring performance; Mutual funds in Nepal.
Unit 10: Managing Portfolios (LH 10)
Constructing a portfolio: role of investor’s personal characteristics, portfolio objectives andpolicies, developing an asset allocation scheme; Evaluating the performance of individual investments: collection of necessary data, analyzing the index of market performance,measuring the performance of investment vehicles, comparing the performance; Assessing portfolio performance : measuring portfolio return, comparison of portfolio return with overallmarket measures – Sharpe’s measure, Treynor’s measure, Jensen’s measure; Portfolio revision.
Unit 11: Derivative Securities (LH 10)
Concept of derivative securities; Put and call options: basic features, advantages anddisadvantages; Option markets; Stock options; Option pricing and trading: profit potentialfrom puts and calls, intrinsic value; Other types of options: stock-index option, options onexchange-traded funds, interest rate options, currency options, LEAPS; The future market:market structure, trading in future market; Trading commodities: speculating and spreading;Financial futures: the financial futures market, trading techniques; Derivative markets in Nepal.
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