advance valuation of bonds and security M043LON Mid-term Assignment (40%) You should justify relevant theories used, their relevance, where possible, demonstrate your understanding of them, by using simple equations or diagrams, or some other illustrations and in presenting your arguments, you should also comment on possible strengths, weaknesses and limitations. Investment Report Section 1.0 The Brief You must prepare as part of an advanced investment plan, a well-defined and diversified(i.e. by geography, sector, type) combination of no less than seven assets (equity, bonds, and any other alternative investments) with proper allocation justification. Use a comprehensive range of performance measures as indicators of quality to such investments. Compute correlation and variance-covariance matrices as well as complete micro and macro security forecasts. State your philosophy in terms of your attitude to risk and your preference for an active or passive form of management of the portfolio you created. Justify your choice. Use excel and an advanced optimizer or other equivalent optimizing methods, such as HL, and/or Lagrange, and/or Utility maximization, etc., techniques or tools to solve for the capital allocation, further on identify the minimum and maximum variances and discuss the results, and where appropriate the usefulness of the methodologies, techniques and models used. The analysis, interpretations, and the theoretical treatment should be done in the context of both passive and active portfolio framework, that should include your “beliefs”, “views”, and should be stylized properly. It is important that both Markowitz and William Sharp models are used in your analysis, valuation, and interpretation. Assume the role of a security analyst and portfolio manager, and as such you must consider the portfolio’s sensitivity to market risk, as measured by its beta in the case of equity, and the portfolio’s sensitivity to interest rate risk, as measured by its duration in the case of bonds. Section 2.0 The report In the report, you should address all of the CW requirements, and you are expected to have your own view of what is expected and how much weight to give any particular requirement element, however you will need to plan your answers carefully, in order to provide a focused answer to the questions, within the word-limit. The report should show that you have developed your understanding of the relevant materials in this module, therefore it is necessary that you, not only get correct numerical answers, but also explain what is being calculated, how it is calculated, the underlying theory, assumptions, the results at appropriate stages of the calculation, and interpretations of the final answers. Graphs, tables, panels, and other illustrations, should NOT be copied from books in a “wholesale” fashion, instead they but should be recreated with justified data selected on appropriate and relevant ranges. You should justify any conclusion you reach on the basis of evidence, cross-referenced to, or quotation from, the course lecture notes, seminar material, textbooks, other course readings, or any other reliable source you choose to use. A report without proper referencing will not be acceptable. You should make use of relevant articles, journals, white papers, books in your research (which you should clearly identify) to support your work. You should also explain the investment strategy you have followed. Your strategy statement should include a statement on your attitude to risk, your own “views”, identifying the theoretical basis for your investment decisions. Your advanced security valuation must make used of models and tools with advanced features and should include measures of performance and comparisons with appropriate indices. Justify the advanced features of the methodologies, models and techniques used and their usefulness. The length of the final paper should be between 2500 and 3000 words, excluding exhibits, should be referenced, and contain a list of the sources of (i) your evidence and (ii) the theory that underpins your analysis and commentary. Failure to do so is unprofessional and fraudulent, and will result in a failing grade for the report and possibly the course Section 3.0 Report Structure (suggestive) Ï Ï Ï Ï Abstract Table of Contents Introduction Advanced Investment Plan Information Acquisition and Forecasting Advanced Portfolio Analysis and Valuation Advanced Optimization Methodologies, Tools and Techniques Conclusion Detailed allocation of marks can be found in the rubrics of this assignment. Deadline: A. Euler The deadline of this assignment is specified on Moodle. All late submissions will receive a ZERO mark. Plagiarism Plagiarism is a serious academic offence and you should ensure that you are aware of the rules, regulations and penalties in regard to it on the CULC website.
07 August, 2015
