University of Queensland - FINM2416: Asset Pricing (Solutions)

This course provides students with techniques for evaluating investments on an individual basis and in the context of portfolio theory and asset pricing. Techniques for analysing investments focus on maximising expected returns while minimising risk are covered. Fixed income security analysis and fund performance are detailed.

This course covers the two main types of investmentsﾠ- equity and debt investments - along with a week on alternative investments and a week on ethics and standards . Our objective is to develop skills in pricing financial assets and forming portfolios which maximise expected return for a given level of risk.

The way this course is integrated with other finance courses is as follows. Note that these are not necessarily the only topics covered in the other courses. The table below illustrates this integration.

FINM2415 Corporate Finance considers the financial decisions managers undertake in order to minimise their weighted average cost of capital, the components of which are the cost of debt and equity capital. We also need to estimate the cost of debt and equity capital in order to value investments and construct portfolios.

FINM3403 International Financial Management considers the international exposure of investments by discussing exchange rate risk, foreign currency derivatives, political risk and international taxation.

FINM3404 Banking and Lending Decisions considers credit risk in various lending situations and the information content of financial statements in assessing this risk.

FINM3405 Derivatives and Risk Management discusses the use of derivatives as a risk management technique. Derivatives allow portfolio managers to structure portfolios to achieve a specified level of risk and expected return.

✔ After successfully completing this course you should be able to:

• Understand factors that impact financial markets.
• Analyse financial data in order to assess a particular investment or investment strategy.
• Perform and evaluate different techniques to value equity, debt, and alternative investments.
• Explain and evaluate the risks associated with investing, including understanding ethical and professional standards in an investment management context.
• Analyse techniques for portfolio creation and to measure portfolio performance.