Requirement and Instructions

Please read the following instructions carefully.

Key Assessment Requirements

1. Analyse the scenarios presented in each question.

2. Present clear recommendations where required

3. Show all logical analytical steps (calculations) used to arrive at conclusions

4. Present a critical report of your analysis and responses to all questions

5. Where appropriate, present key Finance and Economic theories to support your answers together with any assumptions you choose to use in your analysis and any practical implications that these may have.

Submission Requirements

6. You need to submit an electronic copy (Word Document) of your work during the submission period.

7. You need to submit an Excel spreadsheet with ALL the calculations made during the submission period.

8. Note that there are penalties for late submission. Any work submitted after the designated deadline will not be marked.

Referencing

11. You need to follow a proper referencing system in your paper.

12. You also need to do a full bibliography of your sources.

Number of words

13. There is no need to answer questions that are not asked. It is equally not necessary to present any arguments that are not relevant to the specific questions on which you are being assessed.

Pass mark

This assessment constitutes 100% of the overall mark for the module. The pass mark for this assessment is 40%. If this is not your first attempt at this assessment the maximum mark you can obtain is 40%.

There are 5 questions in total. You are required to answer all the Questions in full. Marks are allocated to each question as follows;

Question Allocated Marks

1 20

2 20

3 20

4 25

5 15

Each question may have more than one section and you are required to complete all sections for all questions. The marks allocated to each section where applicable are also shown in the relevant section of the question.

There are 4 questions in total. You are required to answer all the Questions in full. Each question may have more than one section and you are required to complete all sections for all questions. The marks allocated to each section are shown in the relevant section of the question.

Question 1

a. Explain the Piotrowski F-Sore and how it can be used in Portfolio Management.

[5 marks]

b. Choose three companies quoted on the London Stock Exchange and calculate their Piotroski F-Scores. Show your workings.

[5 marks]

c. Choose two of the companies from answer (b) and carry out a fundamental valuation of the fair value of their share price using a Dividend Discount Model of your choice. Justify your choice of the parameters you use in your Model. Compare your valuation with the market share price and discuss any difference. State and justify all your assumptions.

[10 marks]

Total [20 marks]

Question 2

You are Chief Investment Officer at Aldgate Investments. You are concerned that global stockmarkets are close to record highs, but that the world could face a number of shocks, including continued uncertainty over Greece’s membership of the Euro and possible instability in many oil producing countries, that could cause financial markets to fall.

Write a memo to your investment team advising them of steps you want them to take in managing your UK client discretionary portfolios to protect them as much as possible from any potential short term instability in equity and bond markets.

You are aware than some of your investment managers are relatively junior and have only experienced rising asset prices. Include in your report an explanation of your concerns and why you want them to take the steps you suggest.

Total [20 marks]

Questions continue on the next page

Question 3

Explain the difference to an investor between holding a long European Call on an equity and holding a long position on the same company’s shares.

[5 marks]

Illustrate your answer with labelled payoff diagrams using information on a company of your choice available at the link below:

http://markets.ft.com/Research/markets/DataArchiveFetchReport?Category=EQ&Type=UKOPT&Date=09/11/2014

(You may need to copy this link and paste it into your browser)

[15 marks]

Total [20 marks]

Questions continue on the next page

Question 4

Using the Total Return data provided for the UK, German and Swedish equity markets produce a spreadsheet that contains:

a. The monthly total returns for each country, the mean annual return over the period, and the standard deviation of those annual returns.

[5 marks]

b. Construct the Correlation Matrix for the three country indices:

Germany Sweden UK

Germany

Sweden

UK

[5 marks]

c. Create charts showing the possible risk and return combinations for each of the 3 different combinations of investing in 2 countries

[5 marks]

d. Calculate the minimum possible risk attainable for a portfolio investing in just the German and Sweden equity markets. How much of the portfolio should be invested in the German equity market, and how much in the Swedish equity market? What is the expected risk and return of this portfolio?

[5 marks]

e. Calculate Sharpe ratios for each of the 4 indices in the spreadsheet (Europe, Germany, Sweden and the UK), and also for the minimum risk portfolio calculated in part (d). Assume a risk free rate of 2% per annum.

[5 marks]

Total [25 marks]

Questions continue on the next page

Question 5

Bond A has maturity of 20 years, a coupon rate of 6% (paid annually) and a yield to maturity of 5.5%. Bond B has a maturity of 10 years, and an annual coupon rate of 4% and yield to maturity of 4.5%. Both bonds are redeemable at par of100.

a. Calculate the price of each bond

[5 marks]

b. Calculate the duration and modified duration of each bonds.

[5 marks]

c. Which bond would you prefer if you thought interest rates were going to rise? Which would you prefer if you thought they were going to fall? Give reasons for your choices.

[5 marks]

Total [15 marks]

Total exam [100 marks]

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