Dr. Arthur Gudikunst

Office Telephone: X6387 E-mail: agudikun@bryant.edu

Office: Suite G, Room 359

Office Hours: Tuesday 3:00-5:00 pm, and Thursday 3:00-6:30 pm

Other times by appointment

COURSE OBJECTIVES

The markets for debt securities are the largest and most complex capital markets serving governments and corporations around the globe. In the early weeks of August 1998, World Com issued the largest-ever single issue of bonds, $6.1 billion, for use in its merger with MCI. Bell Atlantic issued a $ 3 billion bond issue exchangeable in four years into shares of Cable and Wireless Communications PLC (a British company). And, the U.S. Treasury announced the sale of $13 billion of new debt securities. With just these three issues, investors around the world will need to commit over $22 billion of cash to new bond investments. How do investors select which bonds to buy and hold? Is the World Com bond better than the Bell Atlantic bond? Does the type of bond selected for a portfolio depend on just its yield to maturity and quality, or are there other factors that a portfolio manager must consider before making an investment in debt securities?

Investing in debt securities is no longer the boring, conservative strategy for low-risk investors. The debt securities available on the markets have changed from the fixed coupon, fixed maturity bonds issued by high quality government and corporate borrowers. Bonds now are defined by fixed versus floating interest rates, exchangeable, putable, callable, inflation-adjusted, dual-currency payments, which also contain complex covenants designed to protect either the issuer or bondholder from various events during the life of a bond. Bonds are more complex investment securities than are common stocks. One company's common stock is basically identical to another company's stock. Bonds, even issued by the same company, can be significantly different from each other. This is the challenge of investing in debt securities.

This course will explore the investment analysis process and the portfolio management of debt securities. This requires a high level of QUANTITATIVE analysis and computer skills. Pricing bonds requires knowledge of the pricing of various derivative securities, and an understanding of the volatility of interest rates. Managing bond portfolios is more varied than stock portfolios, with specific management strategies for different types of investors. The focus in this course is that of developing the skills and knowledge of a professional investor operating in the bond markets, and not that of a private individual investor. The course will require a high degree of involvement with quantitative analysis and computer spreadsheet applications. The topics are complex and require continuous work on the material. Exams are cumulative of all material, quizzes may be used by instructor at any time, and there will be out-of-class assignments requiring close attention to the daily activities of the bond market.

The final goal of this course is to expose students to the modern bond market environment in such a way that one could competently interview for a professional Wall Street investment position on the bond side of the house.

TEXT REQUIREMENT

Bond Markets, Analysis and Strategies, 3^rd Edition by Frank Fabozzi

Prentice-Hall, 1996

Daily access to Wall Street Journal

Access to Internet Web-sites: www.bondsonline.com

www.cbot.com

www.duke.edu/~charvey/

Supplemental texts on library reserve:

A Complete Guide to Futures Markets , by Jack Schwager

Handbook of Fixed Income Securities, 3^rd Ed., Edited by Frank Fabozzi 1991

Fixed Income Securities, by Frank Fabozzi 1997

Advanced Strategies in Financial Risk Management, by Robert Schwartz and Clifford Smith, Jr.

COURSE RULES AND GRADING

Rules:

1. The submission dates of all assignments, quizzes and examinations are determined and announced by the instructor. No exam or quiz make-ups will be given after scheduled date.
2. If you miss an exam or quiz on the scheduled date, see Rule 1.
3. Term project submission dates will be announced and deadlines enforced, see Rule 4.
4. Your grade in the course will be based on your performance as an employee of Bryant Finance Associates, President A. Gudikunst. Bryant Finance Associates is an equal opportunity employer, whose employees are rewarded solely on demonstrated performance. Occupancy of a fixed space at a fixed time is not a performance measure.

Grading Weights:

Mid-term Examinations 40 %

Written Assignments 25 %

Term Projects 20 %

Final Examination 15 %

COURSE TOPIC AND READING SCHEDULE

WEEK OF: TOPIC and READINGS ASSIGNMENT

Sep 1	Review of Debt Securities and Markets  Reading: text Ch. 1 and 2	Ch 2 (8, 9, 10)
Sep 8	Review of Bond Mathematics, YTM, Duration etc.  Reading: text Ch 3 and 4	Ch 3 (5, 6, 7, 12)  Ch 4 (2, 4, 12)
Sep 15	Yield Curve Analysis  Reading: text Ch 5 and 6	Ch 5 (1, 2, 13, 18)  Ch 6 (3, 4, 5)
Sep 22	Yield Curve Analysis and Corporate Bonds  Reading: text Ch 6 and 7	Yield Curve Handout
Sep 29	Bond Analysis Project-  *** Mid-term Examination 1 ***	Bond Quality Handout
Oct 6	Agency and Municipal Bonds  Reading: text Ch 6 and 8
Oct 13	Securitized and Mortgage Backed Securities  Reading: text Ch 10, 11 and 12	Ch 10 (16, 17) Ch 11 (13)  Ch 12 (14, 15, 29)
Oct 20	Bond Portfolio Management Techniques  Reading: text Ch 17 and 18	Ch 17 (6, 9, 16)  Handout Assignment
Oct 27	Options and Pricing Interest Rate Options  Reading: text Ch 14 and 22	Ch 14 (13, 20)  Ch 22 (4, 7, 18)
Nov 3	Convertible Bonds and Embedded Options  Reading: text Ch 16	Ch 16 (6, 8)
Nov 10	Futures on Debt Securities  Reading: text Ch 21	Ch 21 (4, 11, 14)
Nov 17	Swaps-Interest Rates and Currencies  Reading: text Ch 23  *** Mid-term Examination 2 ***	Ch 23 (1, 2, 10, 13 15)
Nov 24	Risk Management and Managing Portfolios  Reading: text Ch 19 and 20	Ch 19 (5, 21, 22)
Dec 3	Risk Management and Project Reports  Reading: text Ch 19 and 20	Handout Assignment
Dec	Final Examination