Syllabus
Fixed Income Securities (MBA-777)
Fall 2011
Instructor
:
Dr. D.K. Malhotra
Office
:
T102F Tuttleman Hall
Web Address
:
http://faculty.philau.edu/MalhotraD
Office Phone
:
(215) 951-2813
Email
:
MalhotraD@philau.edu
Office Hours
: 9:00 a.m. - 10:30 am, Mondays and Wednesdays or by appointment.
Blackboard Address:
http://bb.philau.edu/
Required Text:
Bond Markets, Analysis and Strategies
by Frank J. Fabozzi, Seventh Edition, Prentice Hall, Inc.,
ISBN-10: 0136078974
Additional Recommended
The Wall Street Journal; Barron’s Paper; The Financial Times; Euromoney;
Corporate Finance; Business Week; Euroweek.
Course Description:
This course focuses on the fixed income market with emphasis on bond market.
Topics include pricing of bonds, bond price volatility, types of fixed income
securities, term structure of interest rates, and bond portfolio management
strategies. Various fixed income products are analyzed in the course, including
some derivative products in the context of bond market.
Course Objective:
The objective of this course is to further enhance the student’s understanding
and awareness of the fixed income securities market. This course is intended to
be a blend of both the theoretical and practical aspects of fixed income
investment decision making. Various concepts and strategies of the fixed income
securities market will be illustrated with the use of MATLAB (Finance
Toolbox) and Fixed Income Securities software.
Prerequisites:
All students must have completed MBA 629 or equivalents.
It is the students' responsibility to make certain that they have successfully
completed these courses. If at any time during the semester it is learned that a
student has not successfully completed these prerequisites, he/she will be
dropped from the course receiving, neither credit nor tuition refunds.
Grading:
Homework
Assignments and
Case Studies
30%
Class
Participation
10%
Mid-term
Exam
30%
Final
Exam
30%
No late homework will be accepted. No makeup exams will be given. If you miss an
exam due to an unavoidable reason, the grade on the missed exam will be
transferred to the final exam. THE FINAL
EXAM IS COMPULSORY AND COMPREHENSIVE. DO NOT EXPECT ANY SCALING ON THE GRADES.
Case Reports:
The cases should be presented in a manner acceptable in a large corporation. The
decision as well as the qualitative and quantitative reasons for the decision
should be communicated in a typed memo. The relevant information should follow
the memo in table form with supporting notes showing calculations. Cases will be
evaluated according to content, analysis, presentations, and continuity.
If any two cases are identical, plagiarism will be assumed and no credit will be
given to either case.
Academic Honesty:
Students are expected to perform according to a code of academic honesty that
prohibits cheating on tests and plagiarizing others' work. Violation of this
code may result in failure of the course.
Grading Policy:
The following policy will be followed for assigning letter grades in this
course.
93 and above A
90 – 92 A-
87 – 89 B+
83 – 86 B
80 – 82 B-
77 – 79 C+
73 – 76 C
70 – 72 C-
Less than 70 F
Retention of Student Exams, Papers, etc:
Students’ materials will be retained for a minimum of four weeks into the
subsequent semester.
Tentative Course Outline:
10/22
Introduction to the Bond Market
Introduction to Fixed Income Securities Course
Features of Bonds
10/26
Pricing of Bonds
Risks of Investing in Bonds
Price Quotes, Accrued Interest, and Invoice Price
10/29
Pricing of Bonds
Measuring Yields
Bond Pricing
Concept of Yield to Maturity
Source of a Bond’s Dollar Return
Total Return
Measuring Yield
11/02
Bond Yields
Bond Price Volatility
Price/Yield Relationship
Price Volatility Characteristics
Measuring Bond Price Volatility
11/05
Bond Price Volatility
Bond Duration
Convexity of a Bond
11/09
Bond Price Volatility
Midterm Exam
11/12
The Term Structure of Interest Rates
Analysis of Yield Curve
Determinants of Shape of the Yield Curve
Implied Forward Rates
11/16
The Term Structure of Interest Rates
11/19
Mortgage Loans
Mortgage Instruments
Risks Associated with Mortgage Loans
11/23
Mortgage Pass-Through Securities
Cash Flow Characteristics
Agency Pass-Through
Conventional Pass-Through
Price and Yield Conventions
Prepayment Risk and Asset/Liability Management
11/30
Collateralized Mortgage Obligations and Stripped MBS
Collateralized Mortgage Obligations
Stripped Mortgage-Backed Securities
12/03
Analysis of Bonds with Embedded Options
Callable Bonds
Price/Yield Relationship for a Callable Bond
Duration and Convexity
Minimum Value of a Convertible Bond
Market Conversion Price
Downside Risk
Pros and Cons of Investing in Convertible Bonds
12/07
Analysis of Bonds with Embedded Options
12/10
Bond Portfolio Management Strategies
Overview
Interest Rate Expectation Strategies
Yield Curve Strategies
Yield Spread Strategies
Option-Adjusted Spread-Based Strategies
12/14
Bond Portfolio Management
12/17
Structured Portfolio Strategies
Indexing
Portfolio Size and Diversification of a Bond Portfolio
Liability Funding
Additional
Randall S. Hiller and Christian Schaack. "A Classification of Structured Bond
Portfolio Modeling Techniques." Journal of Portfolio Management, Fall 1990, pp.
37-48.
G.O. Bierwag, George K. Kaufman, and Alden Toeys. "Immunization Strategies for
Funding Multiple Liabilities." Journal of Financial and Quantitative Analysis,
March 1983, 113-124.
G.O. Bierwag, George K. Kaufman, Robert Schweitzer, and Alden Toeys. "The Art of
Risk Management in Bond Portfolios." Journal of Portfolio Management, Spring
1981, 27-36.
Harry Markowitz. "Portfolio Selection." Journal of Finance, March 1952, 71-91.
Sharmin Mossavar-Rahmani. "Understanding and Evaluating Index Fund Management."
in Frank J. Fabozzi and T. Dessa Garlicki (eds.), Advances in Bond Analysis and
Portfolio Strategies (Chicago: Probus Publishing, 1987).
Frank J. Jones. "Yield Curve Strategies." Journal of Fixed Income, September
1991, 43-51.
Richard W. McEnally and Calvin M. Boardman. "Aspects of
Bond Portfolio Diversification." Journal of Financial Research, 1979, 27-36.