Slide investment 2021 (đầu tư tài chính)

Investment
Associate Prof
Võ Thị Thúy Anh


Course description
 Number of hours: 45 (3 credits)
 Level: Undergraduate
 Pre-requisites: Financial market
and Institutions

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Course description (cont.)
 Aims: This course develops the
understanding and application of the
theory, tools, terminology of investments
from a finance viewpoint. It has the
following aims:
 To provide students with a fundamental and
advanced knowledge of investment theory
 To guide students in the practical application of
investment analysis
 To demonstrate to students the techniques of
financial valuation
Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Learning Outcome


On completion of this course successful students will be able to:


Knowledge and Understanding






Subject-specific Skills






Acquire knowledge of the theory, tools, terminology of investment
management
Understand the limits of such knowledge and its effects on analyses
and interpretation
Apply the principles of investment theory, security and market analysis
and efficiency in a practical setting

Manage a financial portfolio with an understanding of risk and return
Apply the economic analysis of decision making with risk to financial
decision

Personal and key skills:




Use web-based sources to obtain current and historical financial data
Develop numeracy and computational skills, power of inquiry, logical
thinking, critical thinking and capacity for independent and selfmanaged learning
Acquire familiarity with the latest developments and innovations in
investment analysis

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Grading
 The weights given to each part of the
class work are as follows:
 Class Preparation/Participation: 20%
 Regular attendance in classe: 1/3
 Two tests: 2/3

 Assignment and presentation in class:
20%

 Final exam: 60%

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Course outline
 Chapter 1: Introduction to
Investment
 Chapter 2: Portfolio management
 Chapter 3: Asset pricing models
 Chapter 4: Stock analysis and
valuation
 Chapter 5: Bond analysis and
valuation
Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Materials and manuals
 Manuals:
 Bodie, Z., Kane, A., Marcus, A. J.,
Essentials of Investments, Fifth Edition
 Reilly, F. K., Brown, K. C., Investment
Analysis and Portfolio Management, 7th
Edition, Thomson - South Western,

2003. Chapter 1 – 2, 6 – 16, 19

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Materials and manuals (cont.)
 Materials:
 Videos of Petrov’s finance center, course
Investment. All of videos are available on
Youtube

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Chapter 1:

Introduction to Investment
 Questions to be answered:
Why do individuals invest?
What are financial assets?
What is an investment?
How do we measure the rate of
return on an investment?
 How do investors measure risk

related to alternative investments?





Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Materials and Manuals
 Manuals:
 Bodie, Z., Kane, A., Marcus, A. J.,
chapter 1,2, 5
 Reilly, F. K., Brown, K. C., chapter 1, 7

 Videos:
 Investment Analysis: Lecture 1:
Introduction
 Investment: Lecture 3: Financial
Instruments
 Investment: Portfolio theory 01
Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Why Do Individuals
Invest?
By saving money (instead of
spending it), individuals
tradeoff present consumption
for a larger future consumption

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Investments & Financial Assets
 Essential nature of investment
 Reduced current consumption
 Planned later consumption

 Real Assets
 Assets used to produce goods and
services

 Financial Assets
 Claims on real assets

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Major Classes of Financial
Assets or Securities
 Debt



Money market instruments
Bonds

 Stock
 Common stock
 Preferred stock

 Derivative securities
 Options
 Futures
 Others
Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Investment Process
 Security analyse
 Portfolio management

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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How Do We Measure The Rate Of
Return On An Investment?
 The pure rate of interest is the
exchange rate between future
consumption and present
consumption. Market forces
determine this rate

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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How Do We Measure The Rate Of
Return On An Investment?

People’s willingness to pay
the difference for
 borrowing today;
 and their desire to receive a
surplus on their savings give rise
to an interest rate referred to as
the pure time value of money
Investment- Assoiate Prof. Võ Thị
Thúy Anh

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How Do We Measure The Rate Of
Return On An Investment?
 If the future payment will be
diminished in value because of
inflation, then the investor will
demand an interest rate higher
than the pure time value of
money to also cover the
expected inflation expense

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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How Do We Measure The Rate Of
Return On An Investment?
If the future payment from the
investment is not certain, the
investor will demand an interest
rate that exceeds the pure time
value of money plus the inflation
rate to provide a risk premium
to cover the investment risk.
Investment- Assoiate Prof. Võ Thị

Thúy Anh

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Defining an Investment
A current commitment of $ for a
period of time in order to derive
future payments that will
compensate for:
 the time the funds are committed
 the expected rate of inflation
 uncertainty of future flow of funds

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Risk - Uncertain Outcomes
W1 = 150 Profit = 50
W = 100
1-p = .4

W2 = 80 Profit = -20
E(W) = pW1 + (1-p)W2 = 6 (150) + .4(80) = 122

s2 = p[W1 - E(W)]2 + (1-p) [W2 - E(W)]2 =
.6 (150-122)2 + .4(80=122)2 = 1,176,000

s = 34.293
Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Risky Investments
with Risk-Free Investment
W1 = 150 Profit = 50

Risky Inv.

100

1-p = .4

W2 = 80 Profit = -20

Risk Free T-bills

Profit = 5

Risk Premium = 17
Investment- Assoiate Prof. Võ Thị
Thúy Anh

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The Real Risk Free Rate
(RRFR)
Assumes no inflation
Assumes no uncertainty
about future cash flows
Influenced by time
preference for consumption
of income and investment
opportunities in the economy
Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Adjusting For Inflation
Real RFR =

 (1  Nominal RFR) 

1
 (1  Rate of Inflation) 


Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Nominal Risk-Free Rate
Dependent upon
 Conditions in the Capital
Markets
 Expected Rate of Inflation

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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Adjusting For Inflation
Nominal RFR =
(1+Real RFR) x (1+Expected Rate of
Inflation) - 1

Investment- Assoiate Prof. Võ Thị
Thúy Anh

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