Investment Management Essays

Investment Management Essays Investment Management Essay Investment Management Essay 24/02/2013 1 25721 INVESTMENT MANAGEMENT Lecturers: Sean Anthonisz Nadima El-Hassan Jianxin Wang Brandon Zhu Subject Coordinator: Jianxin Wang Objectives 2 ? ? ? ? Why do you take this subject? What do you expect to learn? How much did you pay for this subject? Is this a good investment? Investment Decisions 3 ? ? How much should I invest in risky assets? How much should I invest in different risky assets? ? ? How many risky assets should I hold? When not to diversify? ? How to determine mispricing? Fair value today? Expected return next year? ? How well do asset pricing models work? ? ? 1 24/02/2013 Investment Decisions 4 ? Passive versus active investing ? ? Is market efficient? Why not? What does it take to beat the market? How to hedge and how much to hedge? Derivative pricing Trading cost, liquidity, private information ? How should I manage risk? ? ? ? How should I trade? ? ? Sources of my performance? What Do We Learn in This Subject? 5 ? ? ? ? A theoretical framework for portfolio construction. A theoretical framework for the pricing of equities and bonds. Some practical applications of asset pricing models and portfolio analysis. Issues relating to market efficiency and investor behaviour. Course Structure 6 Funds Management Information Portfolio Theory Risk and Return Markets and Investing CAPM Factor Models APT Options Fixed Income Equities Futures 2 24/02/2013 Investment Electives 7 ? ? ? ? ? ? 25705 Financial Modelling and Forecasting 25728 Bond Portfolio Management 25729 Applied Portfolio Management 24731 International Finance 25762 Synthetic Financial Products A whole range of subjects for Quant Fin majors: technical analysis, numerical analysis, fin econometrics, stat methods, derivative pricing, interest rate modelling. Prerequisite 8 ? ? 25742 Financial Management Basic math and statistics Basic calculus and optimization Probability and distributions ? Mean, variance, standard deviation, covariance ? Linear regression by ordinary least square (OLS) ? ? ? Read the online Quantitative Review ? A very brief review next week What Is Expected – in class 9 ? Lectures are primarily aimed at Identifying and explaining key concepts and issues Highlighting the links to practice ? Completing selected problems from text ? ? ? Questions are encouraged and rewarded. ? Discussion is better than lecture Mutual respect and encouragement; Potential problems: repeated late arrivals, chatting during lecture, academic honesty Code of behavior ? ? 3 24/02/2013 What Is Expected – outside class 10 ? Address some details within the course reading materials. ? Group study is more effective ? ? Workload is about 7-8 hours per week on average (albeit uneven), including course readings, practices, and assignments. Multiple learning channels: ? ? Multiple levels of learning: ? Web-bas ed learning support Lecture material, textbook, and Excel sheets Approach to Learning 11 ? ? ? Read relevant chapters prior to lectures Attempt to identify and understand the key messages: Concepts? Issues? Connections? Ask questions during lecture. ? You paid $$$ for the opportunity ? ? Think reflect; don’t just summarize memorize. Practice using back-of-chapter questions. Approach to Learning I listen and I forget; I see and I remember; I do and I understand. Xun Zi Just Do It! Nike 12 4 24/02/2013 Textbook and Readings 13 ? Bodie, Kane, Marcus, Investments, 9th Ed, McGraw-Hill/Irwin, 2011. ? You take full responsibility if using an earlier edition. ? ? ? ? Harvard Business School case study 9202-024 â€Å"Strategic Capital Management†. R. A. Haugen, Modern Investment Theory, 5th Ed, Pearson Higher Education, 2001. J. H. Cochrane, 2006, Investments Notes. Other fun books on financial markets. Assessments 14 ? Weekly online quizzes: 10 marks ? ? ? ? ? 15 MC questions in 1 hour Unlimited tries with the best mark kept Monday morning to next Wednesday midnight Once closed, quizzes cannot be reopened Best 10 marks for the semester Group-based case report Online group registration Report due 5pm Friday March 29 Late submissions carry point deduction ? Case study in lecture 6: 10 marks ? ? ? ? Assessments 15 ? Mid-session exam: 40 marks ? ? ? ? Cover lectures 1 – 6, including the case study Multiple-choice (20 marks) Short-answer questions (20 marks) No formula sheet Cover lectures 7 – 13, excluding lecture 8 Multiple-choice (20 marks) Short-answer questions (20 marks) A short list of formulas will be identified and provided during the final exam. ? Final exam: 40 marks ? ? ? ? 5 24/02/2013 Online Group Registration 16 ? ? ? ? ? ? Log in the online course website Click on â€Å"Groups† in the left panel Group names contain â€Å"1m†, â€Å"2m†, â€Å"3m†, â€Å"4m†, indicating max members = 1, 2, 3, 4, respectively. The first member is the group leader. Registration closes after 5pm on March 10. Changing group only in the most extreme circumstances. What’s Required? 17 ? ? ? Materials covered in the chapters listed in the lecture program, except certain subsections are explicitly excluded. The midsession and the final exams will focus on materials covered during lectures, with at most 3-4 multiple-choice questions in each exam on materials not covered in lectures. Materials not covered in lectures will be heavily featured in the online quizzes. Administrative Issues 8 ? Name sign: â€Å"Open† for the business of learning ? Take it out at the start of every lecture It’s good to make the lecturer know your name ? Come to consultation hours ? ? ? Other times by appointment Email for straightforward questions Complex questions are best answered through interactive discussion ? Emails will be answered before or during the next consultation hours ? 6 24/02/2013 Learning Support P ostgraduate ? ? ? ? ? Need help with your postgraduate studies at UTS Business School? Are you new to university / postgraduate education? Not sure to how develop your academic skills in writing, reading, critical thinking etc.? Not sure how to complete assignments or achieve your best? Ask for help from the Learning Support Coordinator ? ? ? ? ? ? Make appointments for confidential individual help Lots of ‘online study resources’ to recommend / hardcopy study resources to share Attend the Study Skills Workshops all semester / or download them / Help by email / phone support / Email: [emailprotected] edu. au www: business. uts. edu. au/teaching/student/resources/studen t-learning. tml Join us on facebook UTSBlearningsupport ? Asset Classes 20 ? ? ? ? ? ? The money market The bond market The equity market The real estate market Currency markets Derivative markets ? Financial and commodities ? Others? Trading Platforms 21 ? Organized exchanges Dealership markets Auction markets ? Electronic trading ? ? ? ? OTC NASDAQ Alternative trading systems (ATS) ? ECNs, dark pools, internal crossings. ? Algorithm/high f requency trading 7 24/02/2013 High Frequency Trading 22 ? Menkveld (2011): a HFTer on Chi-X Dutch stocks from Jan 2007 to June 2008 Trades 1400 times per stock per day ? Gross profit per trade â‚ ¬0. 88 ? ? ? ? ? â‚ ¬1. 55 profit on the spread net of fees â‚ ¬0. 45 profit on positions 5 seconds â‚ ¬1. 13 loss on positions = 5 seconds Max capital committed ? â‚ ¬2 million per stock ? Implied annualized Sharpe ratio = 9. 35! ? ? Sharpe ratio for SP500 over the period = -0. 16 ? Chi-X is in Australia. Costs of Trading 23 ? Commission: fee paid to broker for making the transaction ? Exchange members/subscribers? ? Spread: Bid and ask prices Spread: ask – bid ? P89, #14 ? Market versus limit orders ? ? ? Price impact of large trades Stock Margin Trading 24 ? ? ? ? Borrow (from brokers) to purchase shares Initial margin Maintenance margin minimum level the equity margin can be Margin call ? Call for more equity funds ? Margin arrangements differ for stocks and derivatives 8 24/02/2013 Margin Trading Initial Conditions 25 ? ? ? ? ? X Corp: P = $70 Initial Margin = 50% Maintenance Margin = 40% 1000 Shares Purchased Initial Position: Stock $70,000 Borrowed Equity $35,000 $35,000 Maintenance Margin 26 ? ? Stock price falls to $60 per share New Position ? $60,000=$35,000(Borrowed) + 25,000(Equity) ? Margin = $25,000/$60,000 = 41. 67% How far can the price fall before a margin call? ? ? (1000P $35,000) / 1000P = 40% P = $58. 33 ? P88, #9 Short Sale 27 ? ? Purpose: Profit from a price fall Mechanics Borrow stock through a dealer/broker Sell it and deposit proceeds and margin in an account ? Any dividend is passed back to the lender ? Closing out the position ? ? ? ? Buy back the stock and return it to the lender Prof its can be deposited into your own account ? Naked versus covered short sale 9 24/02/2013 Short Sale Initial Conditions 28 Z Corp Initial Margin Maintenance Margin Initial Price Sale Proceeds Margin Account Balance 100 Shares 50% 30% $100 $10,000 $ 5,000 $15,000 Short Sale Maintenance Margin 29 ? Stock Price Rises to $110 Stock owed Net equity ? Margin % (4000/11000) ? ? $11,000 $ 4,000 36% ? ? How much can the stock price rise before a margin call? ($15,000 100P) / (100P) = 30% P = $115. 38 P89, #12 Summary 30 ? Course introduction and requirements ? Think, reflect, and participate ? ? Financial markets and assets Trading of financial assets Trading platforms Transaction costs ? Margin trading and short selling ? ? 10

Circumference of a Circle

Circumference of a Circle Circumference Definition and Formula The circumference of a circle is its perimeter or distance around it. It is denoted by C in math formulas and has units of distance, such as millimeters (mm), centimeters (cm), meters (m), or inches (in). It is related to the radius, diameter, and pi using the following equations: C πdC 2πr Where d is the diameter of the circle, r is its radius, and π is pi. The diameter of a circle is the longest distance across it, which you can measure from any point on the circle, going through its center or origin, to the connecting point on the far side. The radius is one-half the diameter or it can be measured from the origin of the circle out to its edge. π (pi) is a mathematical constant that relates a circles circumference to its diameter. It is an irrational number, so it doesnt have a decimal representation. In calculations, most people use 3.14 or 3.14159. Sometimes it is approximated by the fraction 22/7. Find the Circumference s (1) You measure the diameter of a circle to be 8.5 cm. Find the circumference. To solve this, simply enter the diameter in the equation. Remember to report your answer with the proper units. C πdC 3.14 * (8.5 cm)C 26.69 cm, which you should round up to 26.7 cm (2) You want to know the circumference of a pot that has a radius of 4.5 inches. For this problem, you can either use the formula that includes radius or you can remember the diameter is twice the radius and use that formula. Heres the solution, using the formula with radius: C 2πrC 2 * 3.14 * (4.5 in)C 28.26 inches or 28 inches, if you use the same number of significant figures as your measurement. (3) You measure a can and find it is 12 inches in circumference. What is its diameter? What is its radius? Although a can is a cylinder, it still has a circumference because a cylinder is basically a stack of circles. To solve this problem, you need to rearrange the equations: C πd may be rewritten as:C/π d Plugging in the circumference value and solving for d: C/π d(12 inches) / π d12 / 3.14 d3.82 inches diameter (lets call it 3.8 inches) You could play the same game to rearrange a formula to solve for the radius, but if you have the diameter already, the easiest way to get the radius is to divide it in half: radius 1/2 * diameterradius (0.5) *(3.82 inches) [remember, 1/2 0.5]radius 1.9 inches Notes About Estimates and Reporting Your Answer You should always check your work. One quick way to estimate whether your circumference answer is reasonable is to check to see if its a bit more than 3 times larger than the diameter or slightly over 6 times larger than the radius.You should match the number of significant figures you use for pi to that of the significance of the other values you are given. If you dont know what significant figures are or arent asked to work with them, dont worry about this. Basically, this means if you have a very precise distance measurement, like 1244.56 meters (6 significant figures), you want to use 3.14159 for pi and not 3.14. Otherwise, youll end up reporting a less precise answer. Finding the Area of a Circle If you know the circumference, radius, or diameter of a circle, you can also find its area. Area represents the space enclosed within a circle. Its given in units of distance squared, such as cm2 or m2. The area of a circle is given by the formulas: A πr2 (Area equals pi times the radius squared.) A π(1/2 d)2 (Area equals pi times one-half the diameter squared.) A π(C/2π)2 (Area equals pi times the square of the circumference divided by two times pi.)