ECO-7008A Finance: Assessment 2
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit
ECO-7008A Finance: Assessment 2 – Technical Assessment (60%)
This assessment counts for 60% of the overall module grade. Your work needs to be submitted electronically.
You are required to submit ONE clearly and properly presented document. We will be assessing your ability to present concisely and accurately (longer does not necessarily mean better!).
Instructions: Use the dataset provided to complete this assessment. The dataset shows daily close prices of two stocks (DIAGEO and ASTRAZENECA) and the FTSE 100 index close during March, April, and May 2022.
ANSWER ALL PARTS.
PART A: Return statistics [20 marks]
You should start by calculating the daily returns of the FTSE 100, DIAGEO and ASTRAZENECA for the whole period.
1. Present the daily returns for all 21 trading days in May in a table. [3 marks]
2. For the whole period calculate the arithmetic average daily returns of the FTSE 100, DIAGEO, and ASTRAZENECA. Comment on the ranking of these assets. [2 marks]
3. For the whole period calculate the standard deviations of return for the FTSE 100, DIAGEO, and ASTRAZENECA. Comment on the riskiness of these assets according to their volatilities . [2 marks]
4. Calculate the correlation of returns between DIAGEO and the FTSE 100, and between ASTRAZENECA and the FTSE 100. Do you have any evidence to show that ASTRAZENECA ‘moves with the market’ more than DIAGEO does? [5 marks]
5. Calculate the betas of DIAGEO and ASTRAZENECA. Interpret these numbers. Do these numbers make sense empirically (i.e. are the betas what you might have expected for these firms)? [8 marks]
PART B: Portfolio analysis [30 marks]
Let us consider a two-share portfolio that comprises DIAGEO and ASTRAZENECA.
6. Write down the expression for the daily return of your portfolio (based on historical data), and its volatility. Describe your notation clearly. Explain why historical data might not be useful for the purposes of investing? Why is historical data still often used? [6 marks]
7. Calculate the return and standard deviation of the following portfolios.
(i) All DIAGEO
(ii) All ASTRAZENECA
(iii) 25% DIAGEO; 75% ASTRAZENECA
(iv) 75% DIAGEO; 25% ASTRAZENECA
(v) Equally weighted
Present a clearly-labelled graph of the portfolio possibility curve using these portfolios. Mark the
corresponding number of each portfolio on your graph. [10 marks]
8. With reference to your graph from question 7, explain the term ‘efficient frontier’ . Hence or otherwise, identify which of the portfolios above are inefficient. Carefully justify your choice(s). [5 marks]
9. Assume that the daily risk-free rate is zero. Calculate the Sharpe and Treynor ratios for each portfolio. Which of the above portfolios is optimal according to the Sharpe ratio and the Treynor ratio? Comment on your results. [6 marks]
10. Which of the above portfolios would you recommend to an extremely risk-averse investor? Why? [3 marks]
PART C: Further analysis and discussion [50 marks]
11. Using analysis similar to PARTS A & B or otherwise, investigate options for an investor whose choices are to invest in some combination of the FTSE 100, DIAGEO, and ASTRAZENECA. [20 marks]
12. In no more than 1,000 words try to relate the statistics from questions 2-5 to recent developments in financial markets and the global economy. (Here, better marks will come from discussion specific to the period in question and the specific assets you have been investigating.) [30 marks]
2022-07-19