2011 2012 Academic Year

Course: Finance 402 Portfolio Management Prerequisite(s): Instructor: Name: Office Location: Phone/VM: E-mail: FINC215 Dr. Dale A. Prondzinski Fredericksburg, VA (989) 737-9498 dale.prondzinski@davenport.edu CLASS SCHEDULE Please refer to the course calendar for course start and end dates and assignment due dates. To locate the course calendar from the course homepage: Syllabus >>> Course and Assignment Calendar Course Description This course is an advanced study of portfolio construction, management, and protection. The topics covered include setting portfolio objectives, formulating an investment strategy, having a plan for portfolio monitoring and revision, protecting the portfolio when appropriate, and evaluating its performance. The risk-return characteristics of various investment classes are revisited. This is accomplished by covering the mathematics of diversification, a calculation of the correlation and covariance between various asset returns, and the use of these statistical tools in reducing the risk of a portfolio. The revision and evaluation of equity portfolios as well as fixed-income portfolios is presented. Other topics include international diversification, the efficient frontier, market efficiency, and options. Learning Outcomes Upon successfully completing this course, the student will be able to: 1. Classify portfolio objectives and the components needed for meeting the objectives. 2. Assess the advantages and disadvantages of the various types of securities that can comprise a portfolio 3. Calculate the correlation and covariance between the returns of various asset classes, and use those statistical relationships to construct a less risky portfolio.

4. Evaluate portfolio performance using various measures such as Sharpe's and Treynor's risk-adjusted return measures. 5. Revise a portfolio to better meet its objectives when market conditions change. 6. Explain the use of foreign securities to reduce total portfolio risk. 7. Analyze the various forms of hedging and determine when they should be used. Required Textbooks and Additional Materials 978-0-324-66510-9 Portfolio Construction, Management, and Protection Strong, Robert A. 5TH 09//South-Western Publishing Co. Textbook and Technology Policy It is the responsibility of students to be prepared for class which means they should have all required course materials and texts at the start of class as well as reliable access to required technology tools and the internet for the duration of the course. In extreme situations, where there is delay in the shipping or procurement of materials, faculty will make reasonable accommodations during the first week of class only. All students must have textbooks by Week 1 Day 7. No exceptions and no accommodations will be made by faculty after this date. The only exception to this policy is the backorder of texts from the University supplier MBS as notified directly from MBS to Davenport University. Due to copyright laws sections of the text, other than materials authorized by the publisher such as power points, problem solutions, etc, cannot be scanned and posted to the classroom or emailed by either the faculty or students. Similarly, DU does not accept individual technology issues or internet access as a reason for late work in online classes. Be sure to have a back-up plan in case of unexpected glitches, viruses or inaccessibility. Libraries, college campuses, Kinkos, friends and family are frequently used alternatives. Additionally, work must be submitted on time and as directed in the course instructions using Microsoft Office software version 2000 or higher. Work submitted in other formats such as Word Perfect or Open Office will not be accepted. Alternative Delivery Statement Alternative delivery formats require considerably more student time outside of class and maintain the same level of assignments and academic rigor as the traditional classroom format. Assignment Extension Policy It is the responsibility of students to complete all course assignments on time in accordance with the Course Calendar and Late Assignment Policies outlined in a facultys syllabus.

 In extreme situations where there is a scheduled professional or educational conflict that inhibits the students ability to complete an assignment by the deadline, only written contact with the faculty one (1) week prior to the assignment deadline will be considered appropriate for deadline extension. Faculty must confirm in writing their receipt of the request for extension. No extension will be granted for Discussion Board participation or for the final assignment/exam. Instructors Policies Late Policy Assignments submitted after the last day of the course week for the current week will not be accepted unless a request is approved prior to the due date. Please do not ask for extensions unless an emergency exists, remembering that emergencies are an exception. Assignments submitted after the due date will not receive full credit. No credit will be given for assignment turned in more than two days late. No credit can be given for discussion board participation comments posted after the due date. The brevity and accelerated nature of our online learning environment does not allow for extra credit assignments. Please do not ask for what I cannot accommodate. If you are having an issue turning an assignment in on time, please communicate with me so we can work through your issues together. Late points will be deducted as follows: One day: minus 10% Two days: minus 20% Three days: no credit Be on time, allow extra time for problems, but accept the penalty if you miss it-this is the real world! Reservation Statement The instructor reserves the right to make adjustments to this syllabus as needed. Methodologies The methodologies used throughout the course will include discussion, case studies, homework assignments, quizzes, exams, and library use to complete the assessments identified in the course grade determination.

Course Grade Determination Total Points Possible: 1000 Overall course grade determination is allocated as follows: Assignment Forum Topic Response 7 weeks @ 25 points Forum Peer Response 7 weeks @ 15 points Morningstar Direct Certification Mini Exams 2 weeks @ 100 points Research Paper (Required Assessment) (Sub Components included in the overall point total for the assignment include: 1) Nationwide Questionnaire Asset Allocation (10 Points). 2) Fund Allocation Table (10 Points). 3) Fund Questionnaires (50 Points). 4) Presentation (50 Points). Weekly Homework Assignment 7 weeks @20pts. Final Exam Total Points % 175 17.5

105 40 200

10.5 4 20

200

20

140

14

140 14 1000 100%

Course Schedule and Assignments Week 1 Chapter 1 The Process of Portfolio Management Chapter 2 Valuation, Risk, Return, and Uncertainty Chapter 3 Setting Portfolio Objectives Chapter 4 Investment Policy Refer to course calendar in the syllabus section tab

Week 2

Chapter 5 The Mathematics of Refer to course calendar Diversification in the syllabus section Chapter 6 Why Diversification is tab a Good Idea Chapter 7 International Investment and Diversification Chapter 8 The Capital Markets and Market Efficiency Chapter 9 Picking the Equity Players Chapter 10 Equity Valuation Tools Chapter 11 Security Screening Chapter 12 Bond Pricing and Selection Chapter 13 The Role of Real Assets Chapter 14 Alternative Assets Chapter 15 Revision of Equity Portfolio Chapter 16 Revision of the Fixed-Income Portfolio Chapter 17 Principles of Options and Option Pricing Chapter 19 Performance Evaluation Chapter 20 Fiduciary Duties and Responsibilities Chapter 21 Principles of the Futures Markets Chapter 22 Benching the Equity Players Chapter 23 Removing Interest Rate Risk Chapter 24 Integrating Derivative Assets and Portfolio Management Chapter 25 Contemporary Issues in Portfolio Management Refer to course calendar in the syllabus section tab

Week 3

Week 4

Refer to course calendar in the syllabus section tab

Week 5

Refer to course calendar in the syllabus section tab

Week 6

Refer to course calendar in the syllabus section tab Refer to course calendar in the syllabus section tab

Week 7

Assignment Descriptions

1.) Forum Topic Responses (175 points) and Forum Discussion (105 points) One comprehensive forum topic is assigned weekly. Students are required to research the forum topic, using a minimum of 2 reference sources in addition to text book, and then compile a 750-word response to the forum topic no later than Day 3 of the week. (APA Format Required) Forum Topic Responses are worth 25 points/week. Comprehensive, forum topic response contributions will be critically graded on the thought quality of the response, work effort, research, and analysis. Students are also expected to actively participate in the in the discussion forum. Weekly, students are required to log in a minimum of 3 separate days, beginning no later than Day 3. A minimum of 3 substantive participation posts (200-250 words) is required to earn full participation points. Forum peer response work is worth 15 points/week. Students will earn points each week for their discussion participation based on the following criteria: Excellent Average Below Average None

12 - 15 points 1 - 11 points 1 - 7 points 0 points minimum 3 minimum 2-3 minimum 2 no contributions well contributions contributions not contributions or Timely distributed somewhat distributed distributed only DQ Contributions throughout wk throughout wk throughout wk answer Clearly Understands Not evident understands concepts and concepts are Quality of concepts and incorporates them in understood and are incorporates them discussion not incorporated in NA discussion Contribution in discussion Often/sometimes Always advances advances discussion Responses are & copied, have little to Demonstration discussion do with concepts Often/sometimes of Knowledge Always includes includes examples and doesnt advance examples and and real life discussion real life applications applications Examples and real life applications are not included

2.) Mini-Exams (200 points) The course contains 2 mini-exams to successfully demonstrate mastery of the learning content. 3.) Research Paper (200 points)

Required Assignment SpecificationsEVERY STUDENT MUST COMPLETE THIS REQUIRED ASSIGNMENT

Client Mutual Fund Portfolio General Description: Each student prepares a retirement plan for his/herself to be presented to the class. The project requires the application of the principles of investments, financial planning, and retirement planning. The project will involve extensive outside research, a written narrative and an accompanying oral presentation. The narrative must answer all the listed items, calculations should be attached to the paper, and printouts of mutual fund statistics should be included. The analysis and discussion of the results should be at least 5 pages in length, not including charts, graphs and financial data. The presentation should have a discussion of the effect of age on asset allocation and risk undertaking. Students should adhere to proper inclusion of research information within the body of their project. APA style citation should be used.

Specific Requirements for Narrative Portion

The client investment portfolio must be word-processed containing the following segments in the order noted: 1. Discuss the factors that affect the development of an investment portfolio, such as the clients age, risk tolerance, retirement goals, and retirement income needs. Write at least one page explaining the effect of each of these factors on the development of the portfolio. (This part is due with the final paper, Ten points) 2. Assume that you have $100,000 to invest for your client. Visit the website: http://www.nationwidefinancial.com/mm/pub/advice/assetAllocation/assetAllocat ion.html and complete the questionnaire under Asset Allocation Planner, from your retirement plans point of view. The questionnaire will give you a suggestion for a target asset mix based on your answers; it basically gives you recommendations for weights of various types of fund categories. If you desire, you may allocate the money among those fund categories using the recommended weights but remember you must use at least 5 asset types for this exercise. (The questionnaire will be collected in the 3rd week, Ten points) 3. Pick at least 5 no load funds, each with different objectives such as growth, growth and income, capital appreciation, international etc. or objectives

based on the fidelity target mix suggestions***. You can mix and match fund companies. Example: Janus, Fidelity, Vanguard, AIM, etc. Please DO NOT invest in money market funds, and do not split the money evenly among the 5 funds, because that would defeat the academic purpose of this project. (Prepare a fund allocation table, listing the funds name, symbol, objective, the weight of the investment, i.e. $15,000 means 15%, the current share price and the number of shares purchased based on the allocation, the table is due in week 4, Ten points) 4. For each fund answer the mutual fund questionnaire listed at the end of this project. Ten points/ fund x 5 funds=50 points, the fund questionnaires are due in week 5) ***P.S. the fund must have a 10-year history to be included in this project. Be sure to meet this requirement. 5. Calculate the 10-year compound rate of return for each fund using information on websites such as: Example for Magellan (Fidelity): 1+ (the 10-year compound rate of return) for the ten year period [Jan. 1, 1991-Dec. 31, 2000] =

[(1-.0929)(1+.2405)(1+.3363)(1+.2659)(1+.1169)(1+.3682)(1-.0181)(1.2466)(1.0701)(1.4103)]^^.1 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 [(.91)(1.2405)(1.3363)(1.2659)(1.1169)(1.3682)(.98)(1.2466)(1.0701)(1.4103)]^^.1 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 [ 5.38]^^.1 => 5.38yx .1 =1.18 =>10-year compound return =1.18-1=18% (calculator)

Note: the symbol ^^.1 is an exponent which represents the tenth-root when doing the ten-year compound rate of return. (Four points per fund x 5 funds= 20 points, please add the 10 year compound rate of return of each fund to the table mentioned in item # 3) 6. Calculate the weighted average return of your portfolio.
Portfolio Return = W1R1+W2R2+W3R3+W4R4+W5R5, where W(i)=Weight of fund (i) in your portfolio, and R(i) is the 10-year compound rate of return for each fund. (Ten points)

7. Obtain the 10-year Beta of each fund at the end of the most recent calendar year. please add the Beta of each fund to the table mentioned in item # 3 Calculate weighted average Beta of the portfolio =W1B1+W2B2+W3B3+W4B4+W5B5 (Ten points) 8. Calculate the risk adjusted return on your portfolio using the Treynor measure: Treynor= Rportfolio-Tbillrate use 3% unless instructed otherwise .

Beta(portfolio)

(Ten points)

9. Explain the effect of international funds on risk reduction, at least page (Twenty points) 10. Present the results to the class. Each student presents his/her portfolio, emphasizing the effect of age, risk tolerance and investment horizon on asset allocation and investment return.(Fifty Points) Exhibits, must be included (label each and refer to it in the text by the label, for example: Exhibit A) References (must use APA format) ALL REFERENCE MATERIALS MUST ACCOMPANY THE PROJECT.

Final Table Format Due with the Paper:

Fund name, Symbol, objective, weight, 10year compound return, Beta The table should end with the portfolio weighted average return, weighted average Beta, and Treynors risk adjusted return _______________________________________________________________________ _

Mutual Fund Evaluation_

The following questions will help you evaluate a potential investment in a mutual fund. Suggested sources of information are: Morningstar, or Standard & Poors net advantage. A: Fund Characteristics 1. The value of the assets of this fund is 2. The funds Morningstar rating or Standard & Poors rating is: 3. The minimum investment in this fund is: 4. The fund (does, does not) allow telephone exchanges 5. (There is, there is not) a fee for telephone exchanges B: Costs 6. There is a (front-end load, back-end load) charge and it is _____% 7. The annual management fee is _____% 8. The 12b-l fee is _____%

9. The funds expense ratio is _____% 10. Discuss how the above expenses compare with funds that have the same objectives. C: Diversification 11. List the funds investment objective (style, and category) 12. List the types of securities the funds portfolio includes (stocks, bonds, T-bills), etc 13. List the funds top ten holdings and what is their total weight. D: Fund Performance 14. The fund manager has been with the fund since: ___________________ 15. Rate the funds performance over the past 12 months, 3-years, 5-years, and 10-years. 16. How does the fund compare with the market (use benchmark given)? 17. How does the fund compare with its peers? E: Conclusion 18. Would an investment in this fund help you achieve your investment goals? Explain your answer. Note: The mutual fund evaluation form was adapted from the textbook Personal Finance, by Kapoor, Dalaby and Hughes, 6th edition, McGraw-Hill

Specific Requirements for Oral Presentation

Present your findings. It should be 20 minutes in length per student, not including questions and will follow the format of the written analysis. 1. Use PowerPoint slides and handouts for each class member 2. Begin by introducing yourself, topic and format 5. Ensure font is large enough for the audience 6. Use both upper case and lower case font along with various outline icons 7. Slides should be used to convey topic information only, much like an outline 8. Present professionally (for in-class students this includes dressing professionally)

9. Each student presents his/her portfolio, followed by a compare and contrast section of the 3 portfolios, emphasizing the effect of age, risk tolerance and investment horizon on asset allocation and investment return 10. Thank the audience and ask for questions/comments This class will use the alternative delivery method: Alternate Delivery for DU Online Students: Use PowerPoint slides as described above; In lieu of oral presentation, development of a narrative script using the notes pane option in PowerPoint; Use a threaded discussion between student and classmates to facilitate comments and questions regarding the presentation. 4.) Final exam (140 points) The final exam will include chapters covered in the course, and will be administered in the week 7. 5.) Homework Assignments (140 points) Homework will be assigned each week. 6.) Morningstar Direct Certification (40 points) This course provides you the ability to obtain a certification in Morningstar Direct. Upon completion you will be listed on the Morningstar Database as having completed the certification. Be sure to add to your resume. This opportunity will only be available during the course. Technology problems/personal issues will not be accepted as a rationale for not completing on time. (Course late policy does not apply to this assessment) When complete submit a copy of the completion certificate through the assignment link.