Download Department of Economics - Midlands State University

Midlands State University, Department of Economics
EC209: Investment Analysis 1
Lecturer: T Chipunza, STC Syndicate 4
Introduction and Objectives
The course introduces students to the basics of financial economics and investment. It equips students with
an in-depth understanding of the operation and importance of financial markets. The course also exposes
students to financial mathematics and highlights major issues involved in making investment and financial
decisions. It enables each student to be able to analyze various investment vehicles such as common stock,
fixed income securities (bonds, preferred stock) and derivative securities (options, futures, etc).
Course Grading
The grade for this course will be based on coursework and an examination at the end of the semester.
Coursework constitutes 30% of the final mark and comprise of tests and homework assignments. There will
be no make-up tests. A missed test will result in the assignment of a zero score for that test.
Course content
1) Financial markets and Institutions
 Functions of Financial Systems
 Money markets
-Money market instruments
 Capital markets
-Capital market instruments
 The market for Derivatives
 Primary & Secondary markets
4) Valuation of Securities
 Bond pricing
 Valuation of stocks
 Common stock valuation
-The Gordon Model
-Non-Constant growth in Div
 Valuation through P/E ratio
 Preferred stock valuation
2) Mathematics of Finance
 Present and Future values
 Compounding and Discounting
 Annuities and Perpetuities
5) Bonds market and Term structure
 Term structure and YTM
 Factors affecting bond yields
 Term structure theories
3) Project Appraisal Techniques
 Net Present Value (NPV)
 Payback Rule
 Internal Rate of Return (IRR)
 Accounting Rate of Return (ARR)
 Profitability Index
 Inflation and investment Appraisal
6) Market Efficiency
 The Random Walk model
 The Efficient Market Hypothesis
-3 forms of efficiency
 Empirical evidence on market
efficiency
 Market anomalies
References
Bodie, Z, Kane, A & Marcus, A.J (1999): Essentials of Investments, McGraw Hill, New York, 4th Ed
Bodie, Z, Kane, A & Marcus, A.J (2005): Investments, Tata McGraw Hill, New Dehli, 6th Ed
Brealey, R.A. & Myers, S.C (1999): Principles of Corporate Finance, McGraw Hill, New York
Haugen, R.A (2002): Modern Investment Theory, Prentice Hall of India, New Dehli, 5th Ed
Ross, S.A, Westerfield, R.W. & Jordan, B.D. (2003): Fundamentals of Corporate Finance, McGraw
Hill, New York, 6th Ed