DEPARTMENT OF FINANCE

1F0228 FINANCIAL ECONOMICS I

Year 2023 – First Semester
Professor: Samuel Mongrut, Ph.D.
___________________________________________________________________

PROGRAM

I. Introduction

Designing and creating global diversified investment portfolios is crucial nowadays

because we have better tools to invest worldwide and because investing only in
domestic financial securities does not provide us with sufficient portfolio diversification.
Hence, in this course we will show the basics of global investment analysis with
emphasis in stocks and bonds, how to create investment portfolios, and how to
measure their performance.

II. Competencies

 To analyze and evaluate stocks and bonds to create, manage and assess the
performance of an investment portfolio
 To know how to use well-known financial databases and specialized software to
create, monitor and evaluate investment portfolios

III. Learning goals

 To know how to apply different algorithms for portfolio optimization and know their
advantages and disadvantages
 To know how to build a global investment portfolio using specialized software and
standard databases in the financial industry

IV. Learning outcome

Students know how to create and assess the performance of investment portfolios
under different algorithms for portfolio optimization. Theoretical sessions are virtual
through TEAMS and practical sessions are face-to-face sessions unless indicated
otherwise.
V. Content

Unit I: The investment background

1. Investment background: review of the time value of money.

2. Investment fundamentals: asset types, the role of financial markets, trading
mechanisms, the investment process, risk and return, Time Weighted Rate of
Return (TWRR) and Money Weighted Rate of Return (MWRR)
3. Stock valuation: models for valuating dividend paying stocks and models for
valuating non-dividend paying stocks
4. Market-based valuation of equity, relative valuation, or valuation by multiples
5. Types of fixed income securities, risk of fixed income securities, bond pricing,
yields’ measures and total returns
6. Term structure theories and the yield curve
7. Interest rate risk: duration and convexity

Unit II: Portfolio theory

8. Introduction to risk and return of an investment portfolio

9. The mean-variance model of portfolio optimization
10. The risk-free asset and complete portfolios
11. The Capital Asset Pricing Model (CAPM)

Unit III: Cost of capital and market efficiency

12. Estimation of the cost of capital of private companies

13. Fundamental analysis and market efficiency
14. Portfolio performance measurement

VI. Learning strategies

We will use examples, cases and applications using specialized software and the
standard databases in the financial industry

Type Percentage
Financial databases and specialized 50%
software
Case studies and exercises 50%

VII. Grading, rubric and rules

The final grade will have three important components:

Class participation 10%

Practical tests (02) 20%
Cases (03) 20%
Mid-term exam 25%
Final exam 25%

2
Students must solve 02 take-home practical tests, 03 cases and 02 financial
challenges that must be solved in groups (mid-term exam and final exam). Class
participation is tied to your participation in the “Forum” section of the BLACKBOARD.
There will be 10 articles posted in the Forum that you must read and give your informed
opinion on an individual basis. The informed opinion means that you must cite extra
references to support your opinion in each article. Each article commented properly in
the Forum will the worth 2 points, so in total you will have 20 points. I will use the
following rubric to evaluate your participations in the Forum:

Points Criteria
0 No comment
1 Non-informed comment
2 Informed comment

Although there is not an official minimum number of absences during the semester. A
student who misses 05 or more lessons without a justification will be penalized with
minus 05 points in his overall grade for practices (50%).

Rubric

All assignments will be graded with the following rubric:

Criteria Score
Students make the right calculation 10
Students make the proper interpretation 7
of their results
Students provide recommendations to 3
solve the problem
Total 20

Basic rules for the virtual lessons

Students must observe the following rules:

 Please be punctual
 When entering, keep the microphone silent unless you want to participate
 Enter your name and last name as nickname of your connection and not an alias

VIII. References

L1: Bodie Z., Kane A. and Marcus A. (2014) Investments. 10th Edition. McGraw-Hill
Irwin, 1080 pp.
L2: Fabozzi F. (2005) The Handbook of fixed income securities, 7th Edition,
McGraw-Hill, 1531 pp.
L3: Pinto, J., Henry, E., Robinson, T., and Stowe J. (2010) Equity Asset Valuation,
CFA Institute Investment Series, 2nd Edition, John Wiley Sons Inc., 441 pp.
L4: Reilly, F., and Brown, K. (2012) Investment Analysis and Portfolio Management,
10th Edition, South-Western Cengage Learning, 1082 pp.

3
IX. Schedule Group B

Week Date Content Readings Observations

Financial Seed 13
Mo. 20/03 (T) Introduction https://youtu.be/Q90Of8
1 L4 (Ch. 01 and 04)
Th.23/03 (PR) Investment fundamentals r4WRE
No Practical Session
Mo. 27/03 (T) Asset-based valuation L3 (Ch. 03, 04 and
2 PR1 (Weeks 01-02)
Th. 30/03 (PR) models of equity 05)
Market-based valuation
Mo. 03/04 (T)
3 models of equity L3 (Ch. 06) PR2 (Week 03)
Th. 06/04 (PR)
(Inverted)
Mo. 10/04 (T) L2 (Ch 01, 02, 05
4 Bonds’ basics PR3 (Week 04)
Th. 13/04 (PR) and 06)
Mo. 17/04 (T) Structure of interest rates Test-1 (Weeks 01-04)
5 L2 (Ch.07 and 08)
Th. 20/04 (PR) and yield curve (Take Home)
Mo. 24/04 (T) Measuring interest rate
6 L2 (Ch. 09) PR4 (Week 05)
Th. 27/04 (PR) risk
Mo. 01/05 (T)
7 No Session PR5 (Week 06)
Th. 04/05 (PR)

From We. 10/05

8 Mid-Term Exam Weeks (01-07)
to Fr. 12/05
Mo. 15/05 (T) Introduction to portfolio
9 L1 (Ch.05) PR6 (Visual MVO)
Th. 18/05 (PR) Theory
Mo. 22/05 (T)
10 Portfolio optimization L1 (Ch. 06) PR7 (ECONOMATICA)
Th. 25/05 (PR)
Mo. 29/05 (T)
11 Complete portfolios L1 (Ch. 07) PR8 (ECONOMATICA)
Th. 01/06 (PR)
L1 (Ch. 08 and 09)
Mo. 05/06 (PR) Market equilibrium: The
12 and PR9 (ECONOMATICA)
Th. 08/06 (T) CAPM
L4 (Ch. 05)
PT-2
Mo. 12/06 (T) Cost of capital for private
13 (ECONOMATICA)
Th. 15/06 (PR) companies
(Take Home)
Mo. 19/06 (T) Market efficiency and L3. (Ch. 07) and L4 PR10 (Weeks 13 and
14
Th. 22/06 (PR) fundamental analysis (Ch. 11) 14)
Mo. 26/06 (T)
15 Portfolio performance L1 (Ch. 24) No Practical Session
Th. 29/06 (PR)
From We. 05/07
16 Final Exam Weeks (09-15)
to Fr. 07/07