Cash Flows and Fixed income securities: Investments and markets – Principal and interest – Present and future values of streams – IRR. Fixed income securities – Market value for future cash – Bond value – Bond details – Yields – Convexity – Duration – Immunization. Bond portfolio management – Level of market interest rates, Term structure of interest-rate theories.
Stocks and Derivatives: Common stock valuation – Present value of cash dividends – Earnings approach – Value versus price – Efficient markets theory – Technical analysis. Analysis of financial statements. Derivatives – futures and options – Black Scholes formula – Utility functions – Applications in financial decision making.
Portfolio analysis and capital market theory: Covariance of returns – Correlation – Portfolio return – Portfolio standard deviation – Two asset case – Efficient frontier – Optimum portfolio. Capital market theory – Capital market line – Sample diversifications to reduce risk – Characteristic line – Capital asset pricing model. Arbitrage price theory – Stock performance evaluation.