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ASB2217 & ASB3217 INVESTMENT 2020/21
发布时间：2022-07-23
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End of Autumn Semester Examinations 2020/21
ASB2217 & ASB3217
INVESTMENT
Question 1. Answer all parts of the question.
I. The following table shows a market where there are only three assets, and in the next time period, one of three possible outcomes will occur.
|
State |
Excellent |
Good |
Poor |
|
Probability |
0.3 |
0.6 |
0.1 |
|
E(r) |
|
|
|
|
City |
18% |
12% |
7% |
|
Lama |
20% |
16% |
5% |
|
Wool |
2% |
2% |
2% |
(a) Calculate and interpret the expected return and standard deviation for each asset.
(10 marks)
(b) Calculate and interpret the returns correlation for each pair of assets. (5 marks)
II. The table presents the annual expected returns and standard deviations for three portfolios and for the market index:
|
Asset |
E(r) |
Standard deviation |
|
Roll |
11.4% |
18.46% |
|
Nick |
9% |
12.31% |
|
Delta |
7.8% |
14. 11% |
|
Market index |
9% |
12.30% |
The risk-free rate of interest is 1%. This stock market is in equilibrium according to the capital asset pricing model (CAPM).
(a) Calculate and interpret the beta value of each of these three portfolios. (5 marks)
(b) Do these three portfolios lie on the Capital Market Line and what do you conclude
from this? (7 marks)
(c) Two new assets, Alps and James, are introduced to this market at prices which imply expected returns of 14% and 6%, respectively. The expected beta values are 1.5 and 0.75, respectively. Do Alps and James lie on the Security Market Line and what do you conclude
from this? (8 Marks)
III. Critically analyse the advantages and disadvantages of top-down versus bottom-up investing styles. (15 Marks)
[Total 50 marks]
Question 2. Answer all parts of the question.
I. Consider the following three bonds:
|
|
Bond N |
Bond S |
Bond T |
|
Par Value |
£1,000 |
£1,000 |
£1,000 |
|
Coupon |
9% |
0% |
7% |
|
Time to Maturity |
4 years |
6 years |
3 years |
|
Required Yield |
7% |
7% |
7% |
(a) Calculate and interpret the present values of each bond.
(b) Calculate and interpret the Macaulay Duration for each bond.
(11 marks)
(7 marks)
(c) If required yield falls from 7% to 6.1%, discuss the action that a bond portfolio manager should take in this situation. (3 marks)
II. You are considering a new project that costs £2000m and you have estimated the following cash flows: Year 1: £1000m; Year 2: £700m; Year 3: £500m. If the discount rate is 8%, do you recommend the project? (4 marks)
III. Discuss how the Efficient Markets Hypothesis can explain the dynamics of financial markets, and explain the roles and responsibilities of portfolio managers in an efficient market environment. (25 marks)
Question 3. Answer all parts of the question.
I. Using examples, explain how securities are traded in financial markets. (25 marks)
II. Discuss, providing insights from relevant literature, the main characteristics of external credit rating agencies and the key roles of credit ratings in financial markets. (25 marks)
[Total 50 marks]
Question 4. Answer all parts of the question.
I. Consider the following information about Kaplan and Nelly for one-time period:
|
Stock |
Expected return |
Standard Deviation |
|
Koll |
20% |
24% |
|
Nell |
15% |
16% |
You invest 35% of your fund in Koll and 65% in Nell.
(a) Calculate and interpret the expected return of your portfolio. (3 marks)
(b) Calculate the standard deviation of returns on your portfolio, and interpret your
results, for the following two different scenarios: (10 marks)
i. the correlation coefficient between the returns for Koll and Nell is ‘+0.45’ .
ii. the correlation coefficient between the returns for Koll and Nell is ‘-0.75’ .
II. Suppose you have a portfolio of IBM and Dell with a beta of 1.3 and 0.8, respectively. If you put 50% of your money in IBM, 40% in Dell and 10% in the risk-free asset, calculate and interpret the beta of your portfolio. (4 marks)
III. An investor wishes to:
(i) have a shareholding in only one company, Jordan, with a beta of 1.67, and (ii) have a portfolio with a beta value of one.
What is your advice as to how the investor can achieve these twin objectives? (4 marks)
IV. The share price of Conan is currently £125 and the last dividend was £4.50. The analyst is predicting a dividend growth rate of 5% and the required rate of return is 9%. According to the Gordon Growth model, is Conan’s stock fairly priced? (4 marks)
V. Critically analyse the similarities and differences in the characteristics and investment objectives of:
(a) Pension funds, (b) Mutual funds; (c) Hedge funds, (d) Individual/direct investment in
bonds and equities. (25 marks)
[Total 50 marks]
