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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