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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
➢ 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