Fall 2012 Syllabus - College of Business - Washington State University

Washington State University- College of BusinessFinance 437 Cougar Investment Fund ISyllabus- Fall 2012 (September 24 Revision)Instructor: Dr. Glenda Kao Class Hours: Tu & TH 10:35am-11:50am TA: Sangyong HanOffice: Todd 402SA Class Room: Todd 409 TA Office: Todd473Office #: 5-2347 Office Hours: Tu & Th 2pm-3pm TA E-mail:E-mail: Glenda.kao@wsu.edu or by appointment sangyong.han@wsu.edu*****Please Note That Only Change Made Is We Have A NewTA*****Course ObjectivesThis is Part I of a two-semester course. The course combines theory and hands-on practice ofinvestments. We will develop a theoretical framework of investing, covering topics such as risk andreturn, asset pricing models, diversification, security analysis, and portfolio management. Studentsenrolled in this course will have a unique opportunity to apply that framework to investment decisionmaking for a portion (Cougar Investment Fund) of the University’s endowment fund.This sequence of a two-semester course is particularly beneficial to students who aspire to careers infields such as equity research, asset management, investment banking, or private equity.Students who take this course (FIN437) in the Fall semester are expected to enroll in Part II of thesequence, FIN438 during Spring semester to maintain management continuity and to maximize yourlearning experience.PrerequisitesFinance 325 (No Exception)At the minimum, students taking this course should already have adequate experience working withissues related to corporate financial management discussed in FIN325. Since part of the learningexperience in this course is the hands-on management of a portfolio of approximately $1.5 million,students enrolled in this course are expected to already have very solid foundation in finance and avidinterests in investment.Required Material“Essential of Investments”, 8 th edition (2010) by Bodie, Kane, and Marcus (McGraw Hill)Readings and notes that will be announced or distributed for class discussionsFinancial calculator-- You are required to have your own financial calculator (required for the exam andrecommended for classes); please make sure your calculator is capable of performing internal rate ofreturn (IRR) with uneven cash flowsRecommended MaterialIn addition to the assigned readings, you should also keep abreast of the financial markets, theeconomy, and current global events in general. Examples of excellent resources I strongly recommendinclude: Wall Street Journal, Barron’s, CNBC, Economist, New York Times, CNN, and a number of otheron-line, print, network or cable financial and business programs1

Course StructureA significant component of this two-semester course is on managing the Cougar Investment Fund(CIF). First few weeks of the semester will focus more on the theoretical foundation and other relevantinformation to equip students with the knowledge and tools for security analysis. The latter part of thesemester will focus more on investment decision making for the CIF. This portfolio managementresponsibility starts with a group assignment to overview the nine Standard & Poor’s (S&P) sectors,followed by a series of individual sector and security recommendations. More detailed instructions andguidelines on the assignments will be distributed in the first three week of the semester.Cougar Investment Fund WebsiteWe are in the process of updating CIF website. As a result, the website is temporarily unavailable. Weare hoping to have the site ready before our first investment meeting (update will be provided as weprogress).When ready, the CIF website will be the depository of the sector and security recommendation reports,and other information such as current portfolio holding, voting summaries.The Financial Markets LaboratoryThe financial markets laboratory (Todd 402S) is available strictly for students enrolled in this class.Your Coug ID card will get you access to the room (you need to swipe it).Important—Please (1) ensure the room is always secure (do not prop the door open), (2) be courteousto your classmates (e.g., do not engage in loud conversations, nor to monopolize the computer), (3) thefacility is strictly for the use of this class, (4) clean up your mess, and (5) clean up any mess you find.GradesEach student’s final course grade is determined as follows:ComponentPercentageOne Group Sector Overview Presentation & Report 16%One Individual Sector Recommendation Presentation & Report 15%Two Individual Security Recommendation Presentations & Reports (except 34%portfolio managers who make one recommendation each)Participation & Attendance 14.5%Final Exam (Friday December 14 10:10am-12:10pm) 20.5%Total 100%Your letter grade in the course will be determined from your overall percentage score in the class asfollows:Letter grade A A- B+ B B-Range of % Score Above 93% >/90%/87%/83%/80%/77% >/ 73% >/70% >/65% >/55% Below

After setting all of the tentative class letter grades, I reserve the right to move the cut-offs slightly tobenefit students at the margins, and to provide clearer breakpoints between clusters of percentagegrades. This will never lower your letter grades in the course relative to the above table.Sector assignmentEach student will be assigned to one of the nine S&P sectors in the first three weeks of the semester.The number of students assigned to each sector is roughly in proportion to the sector’s relative weightin the S&P500 Index. The students are required to make (1)one group presentation to overview theirassigned sector, (2) one individual recommendation on the assigned sector, and (3) two individualrecommendations on securities of their choice from the assigned sector (except designated portfoliomanagers who make one security recommendation each).Portfolio Managers DesignationThree students will be designated as portfolio managers for the Fall semester. If you wish to apply fora portfolio manager position, please send me a typed one-page application (double spaced, font size11) stating (1) why you want to be a portfolio manager, (2) your overall & finance GPAs, and (3) anyrelevant experience you had by 5pm, the second Thursday (August 30, 2012) of the semester.Designation of the three portfolio managers will be announced approximately a week before the firstscheduled sector overview presentation. The portfolio managers will rotate to chair the investmentmeetings (a total of 15). More detailed information on the roles and the responsibilities of the portfoliomanagers will be available in the first three weeks of the semester.Each designated portfolio manager is required to make one individual security recommendation. Theirgrade as the portfolio manager will substitute the grade for the second individual securityrecommendation.Group Sector OverviewStudents assigned to a sector are required to present (and turn in a report) an overview on the sector asa group. This exercise introduces students to various sectors of the economy, the key drivers andrelevant valuation matrices for evaluating equity securities from those sectors. The sector overviewshould follow the instructions and guidelines on the handout that will be distributed during the firstthree weeks of the semester.Security recommendationsStudents are required to make two security recommendations (except portfolio managers who makeone recommendation each). The securities you choose should be from the sector you are assigned to.You are to recommend to the class whether CIF should purchase the security. Your recommendation willbe subject to votes from the class. Your report and presentation should follow the instructions andguidelines on the handout that will be distributed in the first three weeks of the semester.Security recommendation reports are due at 7am the day before the scheduled investment meeting.Reports for Tuesday investment meetings are due at 7am the Monday before; and reports for Thursdayinvestment meetings are due at 7am the Wednesday before. The reports must be emailed to the TA(see Page 1 for TA’s email address). Reports not turned in on time will result in an 1% reduction of thestudent’s final course grade for each day the report is late.3

A quality recommendation should entail many hours of diligent work. Do not wait till the last fewdays of your scheduled investment meeting to begin your report. Quality of your preparations weighheavily on the grade received on your report.Your grade on the security recommendations is based on the quality of your analysis, writing, andpresentation. Your report and presentation should be professional. This includes carefully proofreadyour reports.Sector recommendationStudents are required to make one sector recommendation. The sector recommendation is to (1)determine why securities in a given sector have under- or out-performed, and (2) makerecommendations for current holdings (e.g., adjust stop-loss price, adjust target price, or sell). Yourreport and presentation should follow the instructions and guidelines on the handout that will bedistributed in the first three weeks of the semester.Sector recommendation reports are due at 7am the day before your scheduled investment meeting.Reports for Tuesday investment meetings are due at 7am the Monday before; and reports for Thursdayinvestment meetings are due at 7am the Wednesday before. The reports must be emailed to the TA(see Page 1 for TA’s email address). Reports not turned in on time will result in an 1% reduction of thestudent’s final course grade for each day the report is late.Your grade on the sector recommendations is based on the quality of your analysis, writing, andpresentation. Your report and presentation should be professional. This includes carefully proofreadyour report.Participation& AttendanceAttendance and active participation are heavily weighted in grading. In addition, students areexpected to exhibit professional behavior and produce professional quality work. Students will begraded accordingly.Attendance--In general, absence from classes is not constructive for learning. This class in particular,students’ absence from class can have far reaching consequences. As one of the portfolio managersfor the University’s Endowment Fund, this class has the mandate to manage the CIF in a professionalmanner and deliver investment performance. Lack of attendance and active participation couldnegatively impact portfolio performance. It could jeopardize our ability to offer this course in thefuture. For these reasons, attendance is required and expected. I will take attendance every class.Each unexcused absence will result in a 1% point deduction in that student’s overall course grade. Toreiterate the message, lack of attendance will severely impact a student’s course grade.For an absence to be excused, it must be cleared with the instructor before the start of that particularclass.Active Participation-- Success in this class will require active and constructive participation in class,diligent work and thorough review on the assigned readings and work problems. You are stronglyencouraged to attempt all practice problems as we work through the course.In addition, all students are expected to actively participate in portfolio management process.Active Participation in the Investment Meeting—To maximize our learning experience and ensurethe success of the portfolio management, it is important that at each investment meeting the entireclass (1) has some familiarity with the securities to be presented, and (2) participate in thequestion/answer section of the presentations. Prior to each investment meeting, students arerequired to submit: (1) a brief summary (a few sentences should suffice) of one of the scheduled4

eports describing what you do or don’t like about the security analyzed in the report; and (2) raisethree questions on the security. If you are on schedule to recommend a security at that investmentmeeting, you cannot submit summary and questions on the security you are recommending that day.You are required to turn in your summary and questions on 12 of the 15 investment meetings. Youneed to turn in a hard copy of the typed (no credit will be awarded to hand-written summary andquestions) summary and questions to the instructor at the start of the class. As the semesterprogresses, you will need to keep track of the number of reports you have turned in as any missing oneswill be assigned a score of zero.In addition, students will be graded based on the extent and quality (e.g., asking tough, constructive,informed, and intelligent questions) of their participation in the investment meetings.Unprofessional behavior—Professionalism is part of the learning experience is this course.Participation points will be deducted for unprofessional behaviors. Examples of such behaviors includebut not exclude sleeping in class, arriving late to class, surfing the web, side conversations, failing to payattention and proper respect to the instructor or your classmates. during their presentationsExamThere will be a final exam scheduled for December 14 10:10am-12:10pm. The exam will cover allmaterials discussed in class including the CIF.A set of questions will be given to the students prior to the exam. The exam questions will come fromthis set of questions but may not be identical. An example is numbers in a work problem on the exammight be different from those in the sample question.The final exam is closed book and closed note. Please bring your own financial calculator to the exam(financial tables will not be provided). Sharing calculator during the exam will not be permitted. Cellphones with calculator functionality are NOT allowedItems NOT allowed during the exam include but not exclude (failure to abide by this will be regardedas a violation of Conduct for Students with corresponding consequences)• Textbook• Required readings and/or handouts• Your own class notes• Any other reference materials• Any electronic devices capable of communications during the exams• Any electronic devices capable of taking photosNO remedial work will be allowed to improve your grade. You are strongly encouraged to seek help ifyou feel you are falling behind in classNO makeup exam will be allowed without prior approval from the instructor• Medical reason-- If you came down with illness, you MUST (1) email or call me at my office upthrough an hour before the scheduled exam, and (2) receive my approval to be excused fromthe scheduled exam. You should contact me (via email or in person) as soon as possible toschedule a makeup exam time/date• Other legitimate reasons-- Prior to the scheduled exam, you MUST (1) bring this to my attentionas soon you are aware of the potential conflict, (2) receive my approval to be excused from thescheduled exam, and (3) schedule a makeup exam time/date with me• Unless prior approvals and arrangements are made, absences from the exam will result in ascore of zero for the exam5

PlagiarismPlagiarism is cheating. The APA Manual (Publication Manual of the American PsychologicalAssociation. Washington DC: American Psychological Association, 1995 p. 292-95) suggests the followingprinciple to avoid plagiarism:Quotation marks should be used to indicate the exact words of another. Summarizing apassage or rearranging the order of a sentence and changing some of the words isparaphrasing. Each time a source is paraphrased, a credit for the source needs to be includedin the text.Anyone engaging in plagiarism will receive a “F” in the course. Make sure you understand thefollowing:• If you use the exact words from another source (e.g., web site), you must enclose it inquotation marks and provide a citation. If you have more than three or four words from asentence, those words should also be in quotation marks. For example, if I re-wrote the firstsentence, using “the exact words from another source” means…• If you paraphrase (see definition above) you still must provide a citationAcademic IntegrityYour personal integrity is the foundation for your success and happiness in business and in life; youshould treat it as your most valuable asset. Academic integrity is also the foundation of ourinstitution’s reputation and success. Academic dishonesty includes, but is not limited to the followingactivities:• Copying the work of another student or anyone else in an exam, or on an assignment• Providing answers to another student or anyone else in an exam, or on an assignment• Using unauthorized materials in an exam• Impersonating another student, or allowing you yourself to be impersonated by another studentin an exam• Changing the name or answers on an exam or assignment after the work has been graded andreturnedPlease be advised that, without exception, any student found guilty of academic dishonesty willreceive an F in the course and will be reported to the Office of Student Conduct.Safety on CampusSafety on campus is the responsibility of every member of our community: students, faculty and staff.Please visit http://safetyplan.wsu.edu/, http://oem.wsu.edu/emergencies, and http://alert.wsu.eduso that you are familiar with campus safety and emergency information.Students with DisabilitiesReasonable accommodations are available for students with a documented disability. If you have adisability and need accommodations to fully participate in this class, please either visit or call theAccess Center (Washington Building 217; 509-335-3417) to schedule an appointment with an AccessAdvisor. All accommodations MUST be approved through the Access Center.6

Revised Course Outline (9/6/2012)Date Agenda Chapter*Aug. 21IntroductionAug. 23 Background 1Aug. 28 Asset classes and Instruments 2Aug. 30 Investment Process 22Sep. 4WSU Endowment Fund & CIFSep. 6 Macroeconomic and Industry Analysis 12Sep. 11 Equity Valuation 13Sep. 13 Equity Valuation 13Sep. 18 Equity Valuation 13Sep. 20 Group Sector Overview Presentation #1Sep. 25 Group Sector Overview Presentation #2Sep. 27 Securities Markets; Mutual Funds 3 & 4Oct. 2 Group Sector Overview Presentation #3Oct. 4 Risk and Return 5Oct. 9 Risk and Return 5Oct. 11 Investment Meeting #1Oct. 16 Investment Meeting #2Oct. 18 Investment Meeting #3Oct. 23 Investment Meeting #4Oct. 25 Investment Meeting #5Oct. 30 Investment Meeting #67

Nov. 1 Investment Meeting #7Nov. 6 Investment Meeting #8Nov. 8 Investment Meeting #9Nov. 13 Investment Meeting #10Nov. 15 Investment Meeting #11Nov. 20 Thanksgiving BreakNov. 22 Thanksgiving BreakNov. 27 Investment Meeting #12Nov. 29 Investment Meeting #13Dec. 4 Investment Meeting #14Dec. 6 Investment Meeting #15Final Exam December 14 10:10am – 12:10pm*Assigned readings:to the classRequired readings in addition to the chapters might be assigned or distributed8