University of Oklahoma Michael F. Price College of Business Financial Markets and Securities FIN 5302 200 Evgenia(Janya) G lu!

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Fall 20&2 +uesday, +*ursday -.30 &0.30 a/ 0%3010

Course Overview +*e Invest/ents # cuses n #inancial decisi ns # individual /arket )artici)ants trying t /a3i/i7e t*e returns 8 /ini/i7e t*e risks # t*eir invest/ent ) rt# li 4 +*e c urse c vers several /a5 r ty)es # #inancial instru/ents, all # 9*ic* are actively traded in t day:s #inancial /arkets4 +* se include st cks, ! nds, and t s /e e3tent, derivatives4 +*e g al # t*is c urse is t intr duce y u t t*ese securities and discuss t*eir )r )erties and t*eir use, as 9ell as t*eir valuati n /et* ds4 Special Accommo ations! $ny student in t*is c urse 9* *as a disa!ility t*at /ay )revent *i/ r *er #r / #ully de/ nstrating *is r *er a!ilities s* uld c ntact t*e instruct r )ers nally as s n as ) ssi!le s 9e can discuss acc // dati ns necessary t ensure #ull )artici)ati n and #acilitate y ur educati nal )) rtunities4 +*e ;niversity # "kla* /a is c //itted t )r viding reas na!le acc // dati ns # r all students 9it* disa!ilities4 Students 9it* disa!ilities 9* re<uire acc // dati ns in t*is c urse are re<uested t s)eak 9it* /e as early in t*e se/ester as ) ssi!le4 Students 9it* disa!ilities /ust !e registered 9it* t*e "##ice # =isa!ility Services )ri r t receiving acc // dati ns in t*is c urse4 +*e ##ice # =isa!ility Services is l cated in G ddard %ealt* >enter, Suit &22, )* ne (105) 325'3-52 r +== nly (105) 325'1&(34 "eligious #oli ays It is t*e ) licy # t*e ;niversity t e3cuse a!sences # students t*at result #r / religi us !servances and t )r vide 9it* ut )enalty # r t*e resc*eduling # e3a/inati ns and additi nal re<uired class 9 rk t*at /ay #all n religi us * lidays4 Aca emic $ntegrity +*e ;niversity ) licy n acade/ic integrity 9ill !e strictly # ll 9ed4 +*e in# r/ati n a! ut t*e ) licy n acade/ic /isc nduct is l cated n t*e # ll 9ing 9e!site. *tt).889994 u4edu8)r v st8integrity %e&t'ook +*e te3t! k # r t*is c urse is Essentials of Investments, eig*t* editi n !y ? die, @ane, and Marcus4 A ur reading assign/ent s*eet attac*ed t t*is sylla!us states 9*ic* ! k c*a)ters and 9*ic* *and uts y u s* uld read !e# re eac* class4

(ra es +*e c urse grade 9ill !e deter/ined !ased n t*e # ll 9ing. +9 )r 5ects +rading Ga/e 0artici)ati n Midter/ ) ints Final (N t > /)re*ensive) +"+$B 300 ) ints 50 ) ints 50 ) ints 300 300 ) ints &000 ) ints

Make)up *&ams $n e3a/ /issed # r a valid reas n /ay !e /ade u) 9it*in ne 9eek4 A u 9ill need t /ake arrange/ents 9it* /e regarding t*e ti/e 8 l cati n4 I# y u /iss t*e #inal e3a/ and cann t /ake it u) !e# re t*e c urse grades are due y u 9ill receive an CID (# r Inc /)lete), )ending y ur taking t*e #inal e3a/4 Pro+ects $ssign/ents are due /idnig*t (end) # t*e due date4 ,ate assignments shall not receive any cre it4 0r 5ects /ust !e su!/itted electr nically via =r )! 34 #elp I *ave reserved $% 300, 2.00 -.00 )/ n N ve/!er &3E and $% 3&2, 2.00 -.00 )/ n =ece/!er 3, t !e availa!le t *el) y u 9it* t*e )r 5ects4 A u are 9elc /e t c /e t t*ese *el) sessi ns4 I# y u are una!le t c /e t t*ese sessi ns, let /e kn 9. in case y u need *el) I can sc*edule an individual a)) int/ent 9it* y u4 %ra ing (ame A u 9ill *ave an )) rtunity t earn 50 ) ints !y )artici)ating in t*e trading ga/e n =ece/!er 14 Fe s*all *ave a c /)uter la! sessi n # r t9 * urs, 9*ere y u 9ill use interactive trading s #t9are t trade *y) t*etical st cks4 A ur sc re 9ill !e deter/ined relative t t*e t*er students, !ased n t*e # ll 9ing criteria. (&) A ur level # activity in t*e ga/e (nu/!er and si7e # y ur trades), 10GE (2) Hersatility # y ur trades (/arket, li/it, instituti nal rder *andling), 10GE and (3) M ney y u /ake in t*e ga/e (20G)4 Communication 0lease c*eck y ur university e/ail acc unt regularly4 +*e !est 9ay t reac* /e is via e/ail als 4 (ra uate Assistant My graduate assistant is t !e ann unced se)arately4 ,ecture Power Points are y ur /ain guide # r studyingI It is /y ) licy t*at I nly test y u n t*e /aterial e3)licitly c vered in class4 I cann t ) ssi!ly c ver everyt*ing in t*e ! k4 % 9ever, t*e ! k is an i/) rtant su))le/ent t reading, and an i/) rtant s urce # )ractice )r !le/s, s /e # 9*ic* 9ill !e d ne in class4

Class Sche ule an "ea ing Assignments F$- ./01)100 Fall 1021 Class %opic "ea ings (? die, @ane, and Marcus) #an outs ( n *tt).88learn4 u4edu) Intr ducti n. Investing Envir n/ent >*a)ters 2, 3, &2

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Jisk and returnE Mean'variance /at*e/aticsE>*a)ters 5, 2 =iversi#icati nE > /!ining risky ) rt# li 9it* a de#ault'#ree securityE S*ar)e rati and >$B4 (uest Speaker =iversi#icati n and 0 rt# li > ntinued >$0ME Inde3 M del 0 rt# li Manage/ent and 0er# r/ance Evaluati n M$4%*"M *5AM E<uity $nalysis =erivatives (Intr duct ry) %#A-6S($7$-( ? nds +rading Ga/e F$-A, *5AM $s sc*eduled !y t*e ;niversity =ece/!er && >*a)ters &0, && >*a)ters &3, &1 >*a)ters &5, &( >*a)ters 5, 2 >*a)ter ( >*a)ters, 1, &-

Oct 1. "ct 30 N v& N v2 -ov 3 N v &3 ' &5 N v 20 -ov 11 N v 2( ' 2K =ec 1

Fall 1021 F$- ./01 )100 #omework Assignment Sheet Assignment 1 due Nov 15 (150 points) I have placed on D2L the monthly price data for five stocks: Apple (AAPL), Boeing (BA), etfli! ( "L#), $al%&art 'tores ($&() and )!!on &o*il (#+&), as -ell as the data for the '.P /00 Inde!, over the period 200/ 1 20223 23 4alc5late monthly ret5rns on each stock and on the '.P /003 24 >alculate t*e average return # r eac* st ck and t*eir variance'c variance /atri34 34 $ssign t*e 9eig*ts # 20G t eac* st ck, i4e4, create an e<ually'9eig*ted ) rt# li 4 >alculate t*e average return, variance, and standard deviati n # t*e ) rt# li 4 14 $ssu/e t*at t*e risk'#ree rate is 2G annually, r (28&2)G / nt*ly4 >alculate t*e S*ar)e rati # t*e ) rt# li 4 54 ;sing S lver, #ind t*e )ti/al ) rt# li 9eig*ts t /a3i/i7e t*e S*ar)e rati # t*e ) rt# li 4 In rder t d t*at, /ake sure t*at y ur 9eig*ts add u) t ne via a # r/ulaI 24 N 9 #ind t*e )ti/al ) rt# li 9eig*ts using t*e )ti/al ) rt# li # r/ula4 Make sure t*at t*e )ti/al 9eig*ts and t*e )ti/al S*ar)e rati y u #ind via t*e # r/ula are very cl se t t* se y u #ind 9it* S lverI (4 Fr / n 9 n 9 rk 9it* t*e )ti/al 9eig*ts4 $ssu/e y ur initial invest/ent in t*e ) rt# li is &,000,0004 S* 9 y ur ) siti ns in eac* st ck as 9ell as y ur t tal ) rt# li value at t*e end # eac* / nt*4 A u 9ill need t re!alance / nt*ly t /aintain t*e )ti/al 9eig*ts y u *ave # undI -4 >alculate t*e series # / nt*ly returns and cu/ulative returns # r t*e )ti/al ) rt# li and # r t*e SL0 500 ver t*e sa/)le )eri d4 K4 >*art t*e cu/ulative returns (t*e series # r t*e )ti/al ) rt# li and t*e series # r t*e /arket inde3) n t*e sa/e )l t4 F uld t*e )ti/al ) rt# li *ave ut)er# r/ed t*e SL0 500 inde3 ver t*e sa/)le )eri dM &04 Esti/ate t*e !eta # t*e )ti/al ) rt# li , assu/ing risk'#ree rate t !e a c nstant 2G )er year (9*ic* /eans, y u d n:t *ave t 9 rry a! ut calculating e3cess returns)4 F uld t*e )ti/al ) rt# li *ave !een riskier t*an t*e /arket ver t*e sa/)le )eri dM &&4 > nsider t*e # ll 9ing transacti n c sts assu/ing y u *ave a !r ker'assisted, n n' nline acc unt4 a3 03/6 per month interest on an open short position *3 03/6 of the dollar amo5nt traded, *id%ask loss c3 728 flat *roker fee per trade per stock regardless of trade si9e d3 70302 per share traded additional *roker fee e3 703000022: per 72 of proceeds if shares are sold (none if *o5ght) ')4 fee Find t*e #uture value # all transacti n c sts, c /) unding / nt*ly at t*e sa/e rate as t*e e3)ected return # t*e )ti/al ) rt# li (i# y u didn:t *ave t )ay transacti n c sts y u 9 uld *ave invested t*e / ney in t*e )ti/al ) rt# li instead)4 F*at can y u say a! ut t*e signi#icance # transacti n c sts relative t t*e invest/ent gain n y ur ) rt# li M

Assignment 2: Due Dec 4 (150 points) I have placed on D2L the )!cel file -ith the financial statements for 'o5th-est Airlines for 200;, 2020, and 20223 All n5m*ers are in tho5sands of dollars3 <sing these financial statements, please perform the follo-ing steps in order to calc5late the intrinsic val5e per share of the company=s stock3 Please perform the calc5lation on a separate spreadsheet in the same file and t5rn it via Drop*o!3 23 <sing the information in the financial statements, calc5late "4") for 2020 and 20223 "or the p5rpose of this calc5lation, take >4apital )!pendit5res? for each year directly from the company=s statement of cash flo-s3 4alc5late the company=s ta! rate as the ratio of (a!es @ )B(3 "or et De*t 5se the s5m of >Long%(erm De*t? and >'hort@45rrent Long (erm De*t?3

23 ProAect the "4") for each follo-ing year, from 2022 thro5gh 20203 In order to do this, make the follo-ing ass5mptions: a3 Bro-th rate in Depreciation )!pense -ill *e fi!ed over 2022%2020 and eC5al to the gro-th in Property, Plant, and )C5ipment for 20223 *3 Bro-th rate in )BI( -ill *e fi!ed over 2022%2020 and eC5al to the gro-th in (otal Deven5e in 20223 c3 (a! Date -ill *e fi!ed over 2022%2020 and eC5al to the (a! Date in 20223 d3 Bro-th rate in +$4 -ill *e fi!ed over 2022%2020 and eC5al to the gro-th in (otal Deven5e in 20223 e3 Bro-th rate in 4apital )!pendit5res -ill *e fi!ed over 2022%2020 and eC5al to the gro-th in Property, Plant, and )C5ipment for 20223 f3 De*t -ill remain the same, and interest e!pense -ill remain the same as in 20223

E3 4alc5late the company=s cost of eC5ity capital 5sing the 4AP& and ass5ming that *eta is 232E, the risk%free rate is 26, and the market risk premi5m is F3/63

:3 Ass5me that the gro-th rate in "4") -ill *e G3/6 post%20203 (hat means, "4") in 2022 -ill *e G3/6 higher than "4") in 2020, and so on forever3 4alc5late the present val5e of all e!pected eC5ity cash flo-s as of the end of 20223 Do +( incl5de the 2022 "4") into the val5ation3

54 >alculate t*e intrinsic value )er s*are # S ut*9est $irlines given ((&,000,000 s*ares utstanding, as # =ec 3&, 20&&4