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Syllabus
Finance 412 – Investment Principles – Winter 2020 Department of Finance and Statistical Analysis
Alberta School of Business
Instructor: Efstathios (Stathi) Avdis, Ph.D.
Office: 3-30B Business Building
Office Hours: Mondays, 11:30 – 13:30 Teaching Assistants: TBA
Course description
This course is about the risk and return of financial assets. Our goal is to learn all the tools we need to build good portfolios for ourselves or our future clients. To do this, we will study how financial markets work, developing a framework for thinking about investment, both in theory and in practice. We will cover a variety of topics such as institutional details, the theory of portfolio selection, capital market equilibrium, market efficiency, behavioral finance, fixed income analysis, and other additional topics, time permitting. Our coverage will be standard, making sure, however, to also discuss how our understanding may be lacking. By the end of this course, I hope you will have
a broad sense of theory and practice as it stands now,
a fruitful starting point for analyzing investment decisions, and
a healthy skepticism of conventional wisdom.
We will incorporate the Learning Goals of the BCom Program: critical thinking, quantitative skills, oral communication, teamwork, and global awareness (more details here).
Prerequisites and background
This is a quantitative course, drawing on analytical tools and theories developed throughout the course. You must be comfortable with concepts of probability, measures of location and dispersion, and linear regression analysis. You will also need some calculus and linear algebra. Working knowledge of Excel is essential for assignments; more advanced coding skills are encouraged but not required. The course prerequisites are FIN 301 and MGTSC 312. You may not receive credit for both FIN 412 and ECON 442.
Required text
Investments, 9th Canadian Edition, by Bodie, Kane, Marcus, Switzer, Boyko, Panasian, and Stapleton, McGraw Hill Ryerson, 2019. Using another edition of the text is entirely up to you; however, any references I make to the text will be to the edition specified above (no mapping of references to previous editions is available). Any material that appears in a chapter of the book that I have covered, or its associated appendices, is fair game for exams.
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Performance evaluation
The table below explains how I will evaluate your performance. The dates are tentative; should they need to be changed, I will give you as much advance notice as I can.
Task Weight in
final grade
Tentative Dates
Subject to the University’s approval
Final (cumulative) 45% B1: 9 am, April 16 (room TBA) B2: 9 am, April 15 (room TBA)
Midterm 25% In-class, Thursday Feb 6
Group Assignment 20% Due noon, Thursday Mar 19
Presentation of Group Research Project
10% Slides due noon, Tuesday Mar 31
In-class presentations start on Thursday Apr 2
Extra Credit 5% Continuous evaluation
All exams are closed-book and cumulative. You are allowed to use a cheat-sheet; more on this below.
The assignment and the research project are to be done in groups of five (subject to change). More details on the assignment and presentation will be made available separately. Late submissions of assigned work will not be accepted and no extensions will be granted. A grade of zero will be assigned if you do not submit or if your submission is late. The research project is graded on your in-class presentation and your submitted slides; you are required to submit your slides before you present, and no changes are accepted after submission.
I will recommend exercises that are not for credit and are not to be turned in. These exercises, together with some in-class problems, have a strange habit of showing up on exams, so doing them is a great way to study for this course. Be advised that I am not the author of the solutions manual provided.
Extra Credit. Class participation is crucial for learning. I will often ask you to think in class, possibly on material that you haven’t fully absorbed yet, and I may cold-call. You don’t need to provide scientifically correct answers; this is a process for you to develop your economic intuition. I will award extra credit for making an effort to showcase your way of thinking in class (i.e. for volunteering to answer my questions, for defending your answers, and for not giving up if I push your rationale a bit—look up the Socratic method for more details). If you engage in extra-credit effort, please talk to me in class immediately after the lecture so I can record your credit.
The final grade distribution will likely be close to, but not exactly equal to, the grade distribution suggested by the University for 400-level courses. Your final grade will be a reflection of your absolute performance and your performance relative to your peers.
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Tentative order of topics (subject to change)
Topic Bodie at al. 9th Ed. Chapter
1 Background and Review 1-4
2 Risk and Return 5
3 Risk Aversion and Capital Allocation 6
4 Optimal Risky Portfolios 7
5 The CAPM 8, 9
6 Factor Models and APT 8, 10
7 Market Efficiency 11
8 Behavioural Finance 12
9 Empirical Evidence 13
10 Bond Prices and Yields 14
11 Term Structure 15
12 Managing Bond Portfolios 16
13 Derivative Securities 20, 22 (time permitting)
How to get questions answered
1. The best way is to ask during class. If you have a question, chances are that you are not the only student with that question. Asking me for help during class will save all of us time, effort, and grief. Be advised that sometimes I will withhold giving you a full answer to something that I believe you should be able to answer on your own with what I have given you.
2. Come to office hours, as posted at the top.
3. In my opinion email is not an effective means of communication between students and teacher. It is the least efficient way to get answers, especially given the quantitative nature of the course and class size. I will try to respond to emails with FIN 412 in the title by the end of two business days after receipt, but in no way can I promise that. In replying, I might ask you to attend office hours, because often 2 minutes of face time helps avoid a long and confusing back-and-forth.1 I might also answer your question directly in class, instead of replying to you in an email.
How to maximize your chances of doing well
I highly recommend following three guidelines. Please note that numbers 1 and 2 are not substitutes of each other.2
1. Read the book 2. Come to class
3. Solve the recommended problems
1 Empirical studies document a high correlation between long emails and brown M&Ms.
2 I lecture under the assumption that you have read the book before class, and I sometimes cover things that are not in the book. Some material from the book has the strange habit of… you guessed it, showing up on exams.
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Important notes (rules of the road)
Please refrain from talking while I am lecturing. Any conversation in the audience is distracting for the instructor and your fellow students. It does not matter how short your conversation is, or how softly you speak, you should know that I can hear it. If you need to ask a question, raise your hand and ask me directly. On occasion, we will dedicate class time for you work in pairs; during those times you will be free to discuss.
Please arrive on time. Late arrivals are disruptive (the business world also deems them unprofessional).
Paying attention pays dividends. Concepts that we discuss in class, and some ideas we develop on the board, also have a strange habit of showing up on exams.
Attendance. If you miss a class, you are responsible for obtaining any information from your classmates and not from me, neither in person nor over email. I also assume that all students are aware of any administrative announcements I make in class or that I post on eClass.
Check eClass daily. Announcements and materials posted on eClass are essential elements of this course. I will frequently post administrative information, readings, recommended exercises and any potential changes to the course. I assume that you see such postings in a timely fashion.
Calculators. You should own a scientific or financial calculator. The minimum requirement for such a calculator is that it has the xy function. You should bring it to all classes, as we will do exercises in class from time to time. All examinations will be created assuming you have one. What calculator you buy and use is entirely up to you, except that you are not allowed to use calculator apps on phones, laptops and tablets during examinations. One idea, especially if you plan to pursue a professional designation, is to buy a calculator that adheres to that professional designation’s calculator policy. For example, if you plan to pursue the CFA designation, you should look at the CFA Institute’s policy. This is only an idea, so you assume full responsibility of the expense of buying a financial calculator.
Other Devices. Students are required to silence their mobile phones during class and abstain from using them. I also recommend not using your laptops during class. I fully reserve the right to ask you to stop using any electronic device whatsoever during class. No communication devices of any kind are allowed during exams.
Exams and allowed examination materials: You are allowed to use only one letter-sized sheet of paper with your own notes on either side of it. I reserve the right to check the materials you have written on this sheet during the exam and to collect this sheet from you at the end of the exam. You may only use pens, pencils, erasers and a calculator. You are required to bring your student picture ID.
In addition, you are fully responsible for ensuring that you have all allowed materials and that these materials are in good working order.
Exams will focus on what we have covered in class, what is contained in the book, or what we have seen through assignments. From time to time I may assign a reading that I will not cover in class. I will inform you if there is any examinable material from those readings. Most –but not all– class material is covered in the textbook, although there may be some items that are exclusive to the notes or to articles distributed via eClass.
The slides that I use in class are presentation slides, and they are not to be construed as substitutes for the book.
Exam re-grades. Re-grading requests must be made in writing, on paper, with a detailed explanation of how grades do not correspond to the answer key as shown to you. The paper with your request must be attached to your exam. Starting from the time when your graded exam is made available to you, you can only make such
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requests after a week has elapsed and before two weeks have elapsed. That is, you must wait for one week and then you have one week to submit your request in writing. Examinations will always be re-graded in full, and grade changes may occur in either direction.
Administrative Information
Deadlines. All deadlines are enforced strictly. There are no extensions or makeups for missed submissions. Late submissions are assigned a grade of zero.
Audio or Video Recording and Photographs. Audio or video recording and photographs, digital or otherwise, of lectures, labs, seminars or any other teaching environment by students is allowed only with the prior written consent of the instructor or as a part of an approved accommodation plan. Student or instructor content, digital or otherwise, created and/or used within the context of the course is to be used solely for personal study, and is not to be used or distributed for any other purpose without prior written consent from the content author(s).
Student Behaviour: The University of Alberta Calendar is committed to the highest standards of academic integrity and honesty. Students are expected to be familiar with these standards regarding academic honesty and to uphold the policies of the University in this respect (full guide here). Students are particularly urged to familiarize themselves with the provisions of the Code of Student Behaviour (online here) and avoid any behavior which could potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence. Academic dishonesty is a serious offence and can result in suspension or expulsion from the University.
Course Outlines, Evaluation Procedures and Grading System. Policy on Course Outlines, Evaluation Procedures and Grading System can be found in the University of Alberta Calendar, section “University Regulations / Academic Regulations / Evaluation Procedures and Grading System / 2” (online here.) (Older Calendars: §23.4(2) of the University Calendar.)
Missed examinations. Students who miss any midterm examination due to illness or other extreme circumstance must notify me of such absence. You must provide a reason for your absence and I reserve the right to require that you sign a statutory declaration attesting to your reason for missing the exam. You must also receive acceptance of your reasons from me, which I prefer to do in person during my office hours or in class. If you fail to provide notice, I will declare your absence unexcused. In addition, if you have not received acceptance of your reasons from me, I will declare your absence unexcused. Unexcused absences from exams are assigned a grade of zero. Those who have an excused absence from a midterm exam will not be given a make-up examination. Rather, the weight from the missed examination will be shifted to the final examination.
Details about missed exams and how to apply for potential deferral of missed final exams can be found in the University of Alberta Calendar, section “University Regulations / Academic Regulations / Examinations (Exams) / Deferred Final Exams” (online here.) (Older Calendars: §23.3 of the University Calendar.)
Should you be ill or otherwise incapable of appearing for the final examination at the scheduled time, you must make a formal request for a deferral of the exam with the School of Business’s Undergraduate Office. For this course, any approved deferred exams will be written at 2pm, Friday June 26, 2020.
