## FINANCIAL ANALYSIS AND INVESTMENT MN7022

Assignment Questions [All questions should be answered]

Section1: [50% of Marks] [2000 Words (+/- 10%)]

Critically discuss the alternative asset pricing models. Explain the cons and pros of each model reflecting on the underlying theories and relevant empirical literature. Utilise arguments from the theoretical and empirical literature to support your discussions. Structure your answer for this question into three subsections: I) introduction; II) analytical and critical discussions; III) Conclusion

Section 2: [50% of Marks] [1500 Words (+/- 10%)]

Collect monthly prices for 7 (seven) stocks/assets of your choice for the last 10 (ten) years traded in a market (of your choice). Use the data to construct  one portfolio (i.e. same stocks/assets). However, use it to generate two objectives the first is to maximise returns and the second is to minimise risk. In other words, same stocks two portfolio-scenarios/objectives one is profit maximisation and the second is risk minimisation. Report the annualised expected returns and risks of the two objectives and any other necessary performance indicators. Report the weighted average portfolio-beta for each objective portfolio. Use available data that can easily be obtained online. Use dividend adjusted close prices.

Guidance:

Section 1:

1.   Utilise your knowledge of the underlying theories, assumptions and limitations of various asset pricing models including and not limited to: Capital Asset Pricing Model (CAPM); Arbitrage Pricing Theory (APT); Multifactor Models.

2.   Utilise argument and findings from updated literature to support your discussions.

3.   Support the answers with graphs and formulae where appropriate.

4.   Graphs are allowed within the text. Extra graphs can be moved the Appendix at the end.

5.   Formulae should be written using the equation function in Word. Students may include the formulae in the footnote of the page to save space.

Section 2:

1. Use the knowledge gained from Transferable Skills documents of estimating CAPM or Market model using regression analysis and other functions in Excel.

2. Calculate each stock variance and standard deviation using Excel

3. Use the SOLVER functions in Excel to maximise (minimise) portfolio return (risk)

4. Present the work in a professional investment report and provide comments on the results.

5. Provide sufficient justification for the choice of stocks/assets and the market.

6. Make sure to collect stock/asset prices that are dividends adjusted.

7. Provide sufficient justification on the choice of the proxy (index) of the market portfolio.

8. Present Tables in an organised manner with captions. Maximum four Tables are allowed within the text. Extra Tables can be moved the appendix at the end.

9. Support the answers with graphs and formulae where appropriate. Maximum four graphs are allowed within the text. Extra graphs can be moved the Appendix at the end.

Formulae should be written using the equation function in Word. Students may include the formulae in the footnote of the page to save space.

The submission deadline is Wednesday 5th May 2021 by 3:00 PM (15:00 UK Time). Professional services office will provide information on how to submit the assignment in due course.

Marks:

The assignment carries 100% of the total marks for this module. Failing to submit an assignment result in a zero mark for the assignment. Late submission is subject to the standard penalty results in deducting marks according to the University Roles and Regulations.

ASSESSMENT

Below are a few tips that you may find helpful in writing essays.

Criteria for a good essay:

• Evidence of reading beyond standard textbooks and lecture notes.

• Coherent, comprehensive, and reflective critique of existing ideas and literature.

• An accurate understanding of key concepts and ideas.

• Imagination and originality.

• Clear development of the argument(s) contained in the essay. The essay should flow in a way that enables any reader to follow the argument(s) and see how the various points made are being used to answer the question.

For example, when you write your essay, consider the following points:

• Before writing the essay, work out on paper a detailed outline of your argument.

• In the essay introduction, you should set out your main themes and intentions: describe the issue you are addressing, identify its main components, and indicate what you are going to do in the body of your essay.

• Break down your arguments into main parts - use this as a basis of your essay that will then be divided up into several sections (you may want to have a section title for each section).

• Build up your argument point-by-point, section-by-section, so that you develop a picture that slowly develops in the reader’s mind.

• Always try to put yourself in the position of a critical reader, ask yourself how s/he would react to your essay, how s/he would understand it, be persuaded by it.

• Do not simply describe the ideas and literature you’re dealing with, provide a critical evaluation.

• Summarise your arguments in conclusion. What is the main significance of what you have been saying?

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