Instructor: Fritz Koger, CFA, PhD E-mail: fritzkoger@pkusz.edu.cn
Office Hours: 1:30 – 2:30 pm, Tuesday
Course: Asset Valuation Theory Class Location: Room C – 105
Course Description: This course is intended for students who wish to learn and analyze the concepts, theories, and applications of Asset Valuation. The course is broad in nature as opposed to deep. It introduces the student to a wide range of topics, hoping to inspire deeper pursuit of various topics covered in this course. The pace is extremely fast! As the name of the course implies, this is a course on THEORY; it is not an applications oriented course. You are encouraged to pursue applying the theories learned in this course in other finance courses and on your own. While learning to apply these theories and relating them to real world examples is extremely important, we simply do not have time to do this, as we will push ourselves hard to cover as many topics in asset valuation theory as possible in the allotted time.
We will cover factors influencing rates of return and various measures of return performance, security market indexes, notions of capital market efficiency, risky asset portfolio efficient frontier without and with a risk-free asset, asset pricing models, financial statement analysis and ratio valuation techniques, top-down and bottom-up valuation techniques, fundamental analysis and technical analysis, bond analysis, and derivative analysis including options, forwards, futures and swaps.
Course Prerequisites: Financial Engineering or equivalent background.
Course Material: Text: Brown and Reilly, “Analysis of Investment and Management of Portfolios”, 9th Ed., South-Western Cengage Learning.
Textbook and SUPPLEMENTAL Notes: TESTS WILL COME FROM THE COURSE TEXTBOOK. Supplemental notes will also be distributed. These are a supplement to the text book, going deeper into concepts, intuition and mathematical derivations to give you a more profound understanding of the material. The supplemental notes include the important notions from the text. The professor understands that they are atypically dense; hence, as such they are NOT intended to be lecture notes. NOR ARE THEY INTENDED TO REPLACE THE TEXTBOOK. They are supplemental. THEIR USE IS OPTIONAL. HENCE, IF YOU DO NOT FIND THEM USEFUL, DO NOT USE THEM. Again, the bible for the course is the textbook.
Course Topics (Text Chapters): Accounting basics (0), introduction to finance (0), basics of investments (1), capital market efficiency (6), risk and return & asset pricing models (7 - 9), introduction to valuation models (DCF, Ratios, Contingent Claims, etc…)(10, 11), common stock valuation (12 – 14), preferred stock valuation, bond valuation (18), options, forwards/futures, and embedded derivatives (20 – 23).
Guidelines: What follows are guidelines to how the course will be managed. There are two overarching themes to these policies: the professor’s aims are (1) to be as fair as possible to everyone, and (2) create the optimal learning environment for everyone! The professor firmly believes that treating individuals differently is inherently unfair. Thus, everyone will be treated identically the same, per the guidelines outlined here. There are no exceptions.
Grading: THERE WILL BE NO MAKE-UP QUIZZES OR EXAMS. IF YOU MISS A QUIZ OR AN EXAM, YOU WILL RECEIVE A 0 FOR IT. There will be 4 quizzes given. Only the best 3 scores count toward your final score. If you miss a quiz, that will be the score that you drop. If you miss two quizzes, one quiz score in your final score’s calculation will be a zero. If you miss three (four) quizzes, two (all three) quiz scores in your final score’s calculation will be zeros. There will be one mid-term exam and one final exam. All quizzes and exams will be curved as needed to ensure PKU HBS guidelines are satisfied.
Anything discussed in a lecture is fair game on a quiz or on an exam. In fairness to all students, I will NOT discuss in private with any student before a quiz or an exam any details regarding the nature of the quiz or exam (e.g., what I plan to emphasize, etc…), but of course, I will answer all specific questions regarding any material covered in the lectures. Information relevant to the nature of the quizzes or exams will only be discussed in class.
Subjective Evaluation: 10% of your final score will be a subjective evaluation, based in part, on your punctuality, attendance, classroom behavior, attitude, preparedness, etc… If you miss a class for any reason, you will be counted as absent for that class. Being tardy and being absent both equivalently negatively impact your grade. If you arrive 5 seconds late, you are late! There is no need to explain your tardiness. You are allowed only 1 tardiness/absence per semester. After that, your subjective evaluation is negatively impacted 20% each occurrence. So if you are tardy/absent 6 times, your subjective evaluation will be 0%. Additionally, if you are tardy/absent 6 times or more, then you will get a 0 for the course (and will not be allowed to take the Final Exam). Your professor appreciates you letting him know in advance if you will be tardy or absent. However, this does not excuse the tardiness/absence. You will be permitted one tardiness/absence. After that, your subjective evaluation will be negatively impacted. A tardiness and an absence have identical negative impacts upon your subjective evaluation. If you sleep in class or if you are not attentive to the lecture (reading a text or other class notes, open your computer, etc…), I will request that you leave, and you will considered absent that day.
Please note that your number of absence are independent of whether or not they are approved by the University or HSBC Business School. I do not distinguish between approved or unapproved absences. If you feel as though you must miss more than one class, I advise you not take this course.
Finally, disturbing the class lectures will negatively impact your subjective evaluation. Talking during class, having a cell phone ring, etc… are disturbances that won’t be tolerated. The rules are designed to optimize the learning environment for all students.
Your final grade will be
10% (Subjective Evaluation) + 30% (top 3 quiz average) + 20% (mid-term exam) + 40% (final exam).
A passing grade is 70.0%. Anything less than 70% is a failing grade. If you have already taken this course once and failed it, or if you have already dropped this course, then the highest grade that you can earn is a 70%. So if you earn at least 70%, your final score will be 70%. If you earn less than 70%, your final score will be the grade that you earn. You should not take this course if this is not acceptable to you.
Calculator Policy: Calculators will not be allowed on quizzes, but are allowed on exams.
No formula sheet is allowed during tests (exams or quizzes) If I were you, I would make sure that I was comfortable with all formulas and their intuitions that have been covered at any point during the semester. Each weekend, I would review the material from that week, and also refresh my memory of all formulas from previous weeks. If you understand the relevant concepts, then knowing the formulas should be relatively trivial. Waiting until just before an exam to try to “memorize” formulas is a recipe for disaster!
Statement about Academic Integrity: This class will be conducted in full accordance with PKU’s policies about academic integrity. Anyone caught cheating will be punished as severely as the school permits.
You will be given guidelines for each test. Violation of these guidelines will result in severe penalty. The tests are designed to be a challenge to finish; the professor wants to see who knows the material best, and believes that one’s speed through a test is directly correlated with one’s preparedness. So anyone who begins early or refuses to turn in the test when the professor requests it gains an unfair advantage over the rest of the class and will be penalized for such behavior. Again, policies are designed with fairness in mind.
Educational Norms and Expectations: You are responsible for material covered in any class that you miss. The professor will not tutor individually such material, nor will he provide copies of missed materials. If you miss a class, you must retrieve lecture notes from a classmate.
If you miss a class or are late, the professor appreciates knowing about it in advance. However, notifying the professor in advance never excuses an absence or tardiness.
There are three (3) rules. (1) You must attend class. (2) You must be punctual. (3) You are not to disturb others. This includes no talking in class, other than addressing the professor. All cell phones, computers and electronic equipment are to be turned off. You are to sit quietly and attentively. The rules are designed to optimize the learning environment for all students. Violation of these rules will negatively impact your subjective evaluation. Your professor appreciates you letting him know in advance if you will be tardy or absent. However, this does not excuse the tardiness/absence.
Expectations regarding study habits: You are expected to study 3 hours per lecture hour. If we meet 4 hours per week, you should be studying 12 hours per week. I do not assign homework, projects, cases, etc… in order that you may optimize your study time, studying in whatever is the most efficient mode for you. This way, you decide how to spend your study time. Read the book multiple times, read other books, read the lecture notes, do homework problems, work in Excel, read cases, etc…; do whatever works best for you!
Again, there is no “event” (i.e., test, homework, etc…) in half the weeks during the semester. This does NOT mean that you should not spend time during these weeks learning this material. You should be spending roughly 12-15 hours studying outside of class EVERY week, regardless of whether or not we have a test that week.
You are expected to read the relevant chapter in the book BEFORE the lecture. That way, the lecture period will be much more productive.
Teaching Assistant (TA) Review Sessions: I will assume that these are productive and helpful unless I hear differently from you. The only way that I will know that they are not satisfactory is if you inform me. Please let me know immediately if you have suggestions for improvement.
Suggestions for improving the course: I am committed to making this course a good as possible. If you have suggestion to improve the course, please inform me, IN PRIVATE. During a lecture is not the appropriate time for such feedback. Please understand that some policies I am committed to (e.g., the fast pace of the course), so take no offense if your suggestion is implemented. However, the course is obviously for your benefit, not mine. So any feedback is greatly appreciated and is seriously considered.
Add/Drop the Course: You are not allowed to add or drop this course after the first week of the module.
Miscellaneous: Any issue not specifically addressed here will be handled at the discretion of the professor.
Course Schedule:
| Week | Topic(s) | Tests |
| 1 | Accounting basics; Introduction to finance | Quiz #1 after 1st week |
| 2 | Basics of investments; Capital market efficiency | |
| 3 | Risk and Return; Markowitz Risky Portfolio Theory | Quiz #2 after 3rd week |
| 4 | SML; CAPM; Arbitrage Pricing Theory | Mid-Term Exam after 4th week |
| 5 | Common Stock Valuation Models (DCF Analysis) | |
| 6 | Common Stock Valuation Models (Ratio Analysis) | Quiz #3 after 6th week |
| 7 | Fixed Income (Bonds) Valuation | |
| 8 | Continue Fixed Income valuation; Options | Quiz #4 after 8th week |
| 9 | Options, Forwards/Futures, and Embedded Derivatives | |
| Final Exam | Final Exam (Cumulative) | Final Exam (Cumulative) |
| Week | Days and Dates | Test Date |
| 1 | T (11/1/11) and F(11/4/11) | |
| 2 | T(11/8/11) and F (11/11/11) | Quiz #1: Tues (11/8/11) |
| 3 | T (11/1/11) and F(11/4/11) | |
| 4 | T(11/8/11) and F (11/11/11) | Quiz #2: Tues (11/22/11) |
| 5 | T (11/1/11) and F(11/4/11) | Mid-Term Exam: Tues (11/29/11) |
| 6 | T(11/8/11) and F (11/11/11) | |
| 7 | T (11/1/11) and F(11/4/11) | Quiz #3: Tues (11/8/11) |
| 8 | T(11/8/11) and F (11/11/11) | |
| 9 | T (11/1/11) and F(11/4/11) | Quiz #4: Tues (11/8/11) |
| Final Exam | Monday (1/10/12) | Final Exam (Cumulative) |