FNCE5001: Integrated Financial Instruments and Markets – Research Project

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FNCE5001: Integrated Financial Instruments  and Markets – Research Project

Research Project

Integrated Financial Instruments and Markets

This project is worth 70 marks.

.    Marks are allocated for presentation of assignment, analysis and written report.

.    Any assumptions that you rely upon must be clearly stated in the written report. Do not just state something without developing an argument or discussion.

Total Marks: 70

Formatting requirements:

. Maximum of 10 sides of A4 (excluding tables, diagrams, references and appendices).

. Word limit 4000 Max (excluding references and appendices).

.  Font size ≥ 11; Font face is Times New Roman.

.  Line-spacing 1.5 and minimum margin 2.54 cm in all 4 sides.

.   Submission is via Turnitin

.  Ensure you attach the assessment cover sheet as a frontpage to your assignment and the signed group cover form.

Learning outcomes associated with assignment:

This is a group/individual research assignment (a group of max 2 members)

You are  expected to undertake research,  analysis,  take  responsibility  for  your submission. Questions are linked – they are broken down into marks to assist you in structuring your answers and research.

1. Compare the types of equity securities that companies can use to raise equity capital and understand how share prices are determined.

2. Interpret international financial economic theories in relation to financial instruments and markets, including the effect on calculation of financial instrument prices

3. Ethics and behavioural finance

Group Project Cover Sheet – Integrated Financial Instruments & Markets

Name

Student ID

Contribution

Signature

1

1

2

3

2

1

2

3

3

1

2

3

4

1

2

3

Comments:

Contribution Key: (1) Did less than fair share, (2) Did fair share, (3) Did more than fair share. Recall that there is a 50% penalty if you did not contribute your fair share to completion of the project. Please use the comments section to note any comments you have on the way in which your team worked on the project, the structure of the project, and possible improvements for the project in future sessions.

Qn.

Max. Mark

Assessed Mark

Part 1

15

10

Part 2

15

12

5

Part 3

13

Marker’s Comments:

Group/Individual Project Total 70 marks

You must adhere to the formatting requirements, and provide well-presented and labelled charts (if appropriate) and include references

Question 1 [Total: 25 Marks]

Envestnet Inc (NYSE:ENV) is a stock listed on NYSE.

You will consider the time-period and daily share price of the company for the period 1st of April 2022 until 10th  of August 2023.

Provide a bar or candlestick chart (or multiple charts) of the daily share price for the time period above. Identify at least three days, where news stories, events or issues related to the company have majorly impacted the  share price. Evaluate  and  discuss the magnitude and direction of the price changes (opening to close) of the instances you have identified. Your answer should consider why the news/event/story impacted the share price in the manner that it  did,  as  well  as  other  behavioural  considerations  besides  the identified news articles that you believe would have impacted the share price.                         (15 marks)

Next, use the chart created above and a technical analysis tool from learning module 4 to predict  future  stock  price  movements.  What  does  your  analysis  indicate  if you  were  an existing investor? (would you buy, sell or hold?).  What does the usage of technical analysis mean for the theory of market efficiency?             (10 marks)

Question 2 - [Total: 32 Marks]

You have been considering investing in Envestnet Inc (NYSE:ENV). You have

decided to do a more thorough analysis of it.

i)          Provide   an   industry   and   company   analysis    for   ENV   (see   supplementary resources  on  Blackboard).  You  should  consider  the  factors  which  influence ENV's  share  price  (e.g.  key  competitors,  peers,  industry  influences,  company business, key financial ratios). (15 marks)

ii)         Identify  and  discuss  at  least  one  benchmark  that you have  chosen to  compare ENV against. What considerations did you make in your choice of benchmark? Chart your choice of benchmark against ENV's share price over the same period in Question 1 and compare the two graphically.  What, in your opinion has been the main driver for the share price movement? (12 marks)

iii)       Valuation  multiples  are  often  used  to  compare  companies  quickly.  Identify  an appropriate valuation multiple/ratio and evaluate if ENV is over, under or fairly valued. Explain the reasoning behind your choice of multiple that you utilised for your analysis. Are there any limitations of utilising multiples that you might need to consider? (5 marks)

Question 3 - Ethics and behavioural finance [Total 13 Marks]

Please treat each part as an independent question.

a) Assume we are now in the first week of August 2023. You have made a decision to buy shares of ENV in late August. However, your friend who is a financial advisor for ENV tells you that its  earnings  for the  second  quarter  2023 will be higher than the  analyst  estimates. Your friend suggests you to buy its shares now (i.e. the first week of August 2023) before this  information  is  announced  to  the  public  (and  price  changes).  Please  state  and  explain which CFA Institute Code and Standards your friend has breached. Please explain two standards breached. (4 marks)

b) [Ethics] A friend on social media would like to invest in JKHY (i.e. purchase its shares). She posts false rumours about JKHY currently losing market share to its competitors and having a    downtrend in its relative performance to competitors in order to influence the share price. What    is the current price of Jack Henry & Associates Inc. (choose any date from 1st of August 2023) ?    How would her attempt to influence the share price be viewed if you considered this in light of   the CFA Code of Ethics and Standards of Professional Conduct (Please explain two standards she has breached). (5 marks)

c) [Behavioural finance] Assume you have lost money from your investment in Black Knight Inc (NYSE:BKI) in July 2023. You now decide to invest your fund in a different  stock. You have been monitoring the price and return movement of stock FIM (a random name) over the past few weeks. You find that FIM has been falling by more than 3% and listed among the top declining stocks each trading day over the past one week. You decide to buy BKI as you  believe that there could be a very high chance for it to rebound and generate high return in subsequent periods.

What  is  the best terminology  to  describe  your  behaviour?  Please  use  the  best  behavioural terminology covered in the lectures and also explain your answers. (4 marks)


2023-08-29