| Module Title: Advanced Financial and Investment Management | |
| Module code: NBS-7049X | Credit value: 20 |
| Academic Year: 2017/2018 | Semester: 3 |
INDIVIDUAL Assignment BRIEF
| Assessment Type | Word Length | Percentage (%) counting towards overall module mark | Date Assessment commences | Assignment Deadline: | Return date and nature of feedback |
| Individual Coursework | 4,000 words | 100% | 30/07/2018 | 28/08/2018 15:00 PM | Within 20 working days; a typed detailed feedback report attached to the coursework. |
Title:
Investment Analysis of the FTSE 100 Listed Firms.
Objective:
To understand the key concepts, approaches, evidence and models of modern financial theory and practice.
Sample Data:
You will draw the necessary data for this coursework from databases such as Yahoo Finance, FAME, and Thomson Reuters Datastream (This software is available on 3 PCs behind the library helpdesk ONLY. You can find the guidance from here).
Select any five firms from the FTSE 100 index components (you can find the eligible firms from here). Download adjusted monthly closing stock prices for each one of your five firms over the most recent period of five years (your price series should be from June 2013 to June 2018 so that you can then obtain 60 monthly return observations in total for each stock). You are free to choose whatever stocks you want, irrespective of their characteristics and historical investment performance; this will not affect your grade. Also, download adjusted monthly closing price levels for Vanguard FTSE 100 ETF (VUKE.L) as a proxy for the UK market portfolio over the same 5-year period (you can find its information via Yahoo here).
In order to determine the risk-free rate of return, assume a constant 3-month UK Treasury Bills monthly rate of 0.30% for the sample period.
Investment Analysis Description:
A young risk-averse investor in Norfolk is considering the strategic decision of investing in a portfolio of five FTSE 100 firms. She has not invested in any common stocks before and this investment of £50,000 would be her entire risky investment.
Considering the above investor’s background, you are employed by a leading financial institution and have been asked to advise this client. You will prepare an investment report in Microsoft Word for her and record your data analysis work in an Excel file.
- The report, includes all of the following five sections, should not exceed 4,000 words in total apart from references and appendices.
- All the relevant tables and figures should be contained and discussed in the main body of the report, not in some appendix.
- Each section provides the Tables and Figures you should at least include, and the relevant NBS-7049X Lecture and Lab materials that helpful.
- Your client would like you to 1) explain the meaning of active and passive investment strategies as well as their differences; and 2) discuss your opinions on which of the two strategies would be most appropriate for her given the current UK stock market circumstances. Do not perform your own empirical analysis and testing but use the international and the UK empirical evidence and relevant theories from the academic research literature and the news articles.
Relevant Reading: Lectures 1 & 7.
(20 marks)
- Use your sample data to construct the following four portfolios with short sales allowed:
- equal-weighted portfolio (EWP);
- market-value-weighted portfolio (VWP);
- global minimum-variance portfolio (GMVP); and
- optimal risky portfolio (P).
According to the five stocks and risk-free rate of return, build and draw the three items below in a single graph (type: scatter with smooth lines) of expected returns against standard deviations:
- the optimal capital allocation line;
- the minimum-variance frontier; and
- the efficient frontier.
Further, mark the positions of the five stocks and four portfolios in that graph.
Briefly describe the characteristics of the four portfolios, and critically discuss their main differences from an investment perspective.
Table: Four portfolios’ weights, returns, standard deviations, and Sharpe ratios.
Figure: A single graph includes the optimal capital allocation line, the minimum-variance frontier, the efficient frontier, the five stocks and four portfolios.
Relevant Reading: Lectures 1, 2 & 4 and Labs 2 to 5 & 7.
(25 marks)
- Determine the proportion of the overall optimal complete portfolio (C) in the UK financial market that should be held in the optimal risky portfolio (P) of the five stocks along with the proportion that should be held in the risk-free asset.
Assume that your client has the same coefficient of risk aversion as yours and that you should determine this by using the Charles Schwab Investor Profile Questionnaire (you can find the questionnaire from here). Transform the questionnaire risk tolerance scores “X” (0 to 40) into risk aversion index “A” (2 to 4) by using the following transformation: A = 4 – X/20. For example, a risk tolerance score of 30 becomes a risk aversion index of 2.5 (= 4 – 30/20).
Finally, draw a graph (type: scatter with smooth lines) to illustrate the relevant indifference curve, capital allocation line, optimal risky portfolio (P), and optimal complete portfolio (C). Explain and discuss your results.
Table: Portfolio C’s weights, returns, and standard deviations.
Figure: A single graph includes indifference curve, capital allocation line, optimal risky portfolio (P), and optimal complete portfolio (C).
Relevant Reading: Lecture 3 and Lab 4.
(15 marks)
- On the basis of the single-factor market model CAPM, estimate the beta coefficients for each one of the chosen five stocks.
- Feel free to use whatever method you prefer in estimating the market model parameters (e.g. scatterplot trendline, intercept and slope functions, or regression analysis).
- Discuss if the beta values you have estimated are sensible given the industry nature of the business activities of each firm.
Finally, discuss the relationship depicted in a scatterplot (type: scatter) between expected returns (use the average annualised returns here) and beta coefficients for the five stocks.
Table: Alpha & beta coefficients, and expected returns for the five stocks.
Figure: A single scatterplot of expected returns against beta coefficients for the five stocks.
Relevant Reading: Lectures 5 & 7 and Lab 6.
(15 marks)
- Evaluate in absolute and relative terms the investment performance of each one of the four portfolios that created in Section 2 (EWP, VWP, GMVP and P) with the FTSE 100 benchmark (the Vanguard FTSE 100 ETF) over the five-year sample period:
- Calculate and compare the performance of the four portfolios in terms of time-weighted return, standard deviation, beta, Sharpe ratio, Treynor measure, Jensen’s alpha, information ratio, and M2 All these performance statistics should be annualised as appropriate.
According to the role of the portfolio in your client’s overall investment context, which portfolio would be the best for her to invest in? Which portfolio do you consider the worst choice to your client? Justify and explain your recommendations.
- Compare the best and worst portfolios to your client graphically by using wealth indices.
Table: Performance statistics for the four portfolios with the FTSE 100 benchmark.
Figure: Wealth indices (i.e. cumulative return) for the best and worst portfolios to your client.
Relevant Reading: Lecture 6 and Labs 2 & 7.
(25 marks)
Important Coursework Requirements:
Part 1: Coursework Investment Report
- Report must be word processed in Microsoft Word (or equivalent software). Font must be Times New Roman with a size of 12 points; character scale must be 100% and spacing and position should be normal (the default options); use normal margins (2.5cm on top, bottom, left and right); line spacing must be 1.5 lines with an extra line between paragraphs and headings; alignment must be justified; edit your graphs to distinguish the relevant items.
- All sections, tables and figures must be clearly titled and sequentially numbered. All tables and figures should self-explanatory and should include necessary axis definitions and legends. Apply appropriate formatting for the tables and figures. Numbers in the text, tables and figures should have a reasonable number of decimal points in order to allow an accurate representation and comparisons (usually between 2 and 4 decimal points). For more details on successful presentation see: https://portal.uea.ac.uk/student-support-service/learning-enhancement/study-resources/academic-writing-study-skills/writing
- Provide a contents list and an abstract in the beginning of the report (we do not require you to write an executive summary). Add page numbers on all pages. Include a reference list.
- In each section of the report, you should also include details about the relevant data and calculations. Try to be brief and clear in your explanations.
- In line with normal practice in investment banking and consulting industries, you can assume that the report you will prepare may be used for both background reading and presentation purposes. You may include an appendix if you like but this is optional. Your arguments should be sharp, clear and supported by facts, quantitative & qualitative analysis, figures, tables and appropriately cited sources.
- Include at least 15 references to articles in credible professional magazines/newspapers or academic journals. Do not include articles that you do not cite within your report or that you have not at least partly read. Do not use material that exists exclusively on the internet (e.g., websites, blogs, etc) or module lecture notes/slides as sources in your references.
Part 2: Coursework Excel File
- You should submit the relevant excel file electronically the Summative Assessment 17/18 system via Blackboard before the deadline: 15:00 PM on 28/08/2018. Name the excel file with your university number.
- The calculations and data analysis should be performed using Microsoft Excel in a single workbook with multiple worksheets.
- The excel file should contain the data used along with the relevant analysis, results, and section titles.
- Failure to submit this file will cost your marks and may mean that you fail the coursework.
Other Coursework Guidelines:
- Please preserve anonymity by using your university number, not your name.
- If you need to take the reassessment of this module, you will take another coursework.
- Your coursework should clearly distinguish between your original words and ideas, and those of others. When referring to the work of others, from books, journals or any other source (including the internet), it is essential that you make this clear by acknowledging your source and referencing correctly. Failure to reference correctly will lose you marks and may constitute plagiarism or collusion. For more details on the use of the Harvard System of referencing see: https://portal.uea.ac.uk/documents/6207125/7632456/Referencing+your+work.pdf/8dbd2f18-fc3a-436b-9221-5bfb052b7861
- As a general principle, you should always cite your source whenever you are reporting someone else’s work, using their terminology or quoting directly from their work. You lose no marks for borrowing their concepts or terminology. On the contrary, you probably will gain marks, as you are demonstrating to the reader that you have read the literature and assimilated the ideas of others. In fact, you may well lose marks for not citing, as the reader/assessor is usually familiar with most of the relevant literature in a given area, and may be concerned that you have not cited the relevant literature. It is important that you avoid plagiarism and collusion. You must be fully aware of the relevant UEA rules and regulations can be found at: http://www.uea.ac.uk/plagiarism
- Individual study skills support and advice on referencing is also provided by the Learning Enhancement Service at the Dean of Students Office. The digital copy of your coursework might be used with plagiarism detection software. Instances where plagiarism is suspected will be investigated by the NBS Plagiarism Officer. Students who are found to have plagiarised will be penalised. In proven cases offenders will be punished and the punishment may extend to degree failure, temporary suspension or expulsion from further study if the case comes before a Discipline Committee of the University.
- In line with UEA policy, the word count for coursework, written assignments, projects, reports and dissertations shall include: Footnotes and endnotes, references (in the main text), tables and illustrations and if applicable the abstract, executive summary, recommendations, title page and contents page. Any appendicised material and the bibliography or reference list shall be excluded from the word count. You should declare the word count of the text of their assignment on the coversheet (electronic or hard copy) submitted with their piece of work. Markers who suspect an assignment is over the word limit should assign it an unpenalised mark, and return it to the Learning and Teaching Hub, flagged appropriately, for investigation and application of any resulting penalty. Penalties will be applied if work exceeds the word limit, with a 10% tolerance allowance. Cases of intentional misrepresentation of the word count will result in the mark being capped at the pass mark. When an assignment is excessively over the word limit, the marker is obliged to read up to the limit but is not obliged to read beyond it. It is recommended that a 10% allowance is made in determining the cut-off point, which should be clearly identified on the script by the marker. The awarded mark will reflect the assignment content up to that cut-off point. In addition, this awarded mark will have a 10 mark deduction penalty applied by Learning and Teaching Service staff. For Pass/Fail assignments where the word count is found to exceed the word limit plus 10%, the judgement on whether the grade is a pass or a fail should made only on the text up to the word limit plus 10%. The penalties for exceeding the word limit are: Up to 10% over word limit (No Penalty), 10% or more over the word limit (Deduction of 10 marks off original mark), Failure to provide an electronic copy when requested (Mark capped to the pass mark), Intentional misrepresentation of the word count on the coversheet (Mark capped to the pass mark). When the original mark is within 10 marks of the pass mark, the penalty will be capped at the pass mark. Original marks below the pass mark will not be penalised. See also:
- See also “Guidance for Students on the Procedures for Coursework Submission and Return” 2015/6:
PG Coursework Assessment Criteria
- In preparing your coursework, you should be aware that you will be assessed by reference to the extent to which your answers meet the following criteria:
- Identification and application of knowledge to the question asked
- Capacity to find data from online resources
- Ability to apply theories related to the question asked
- Demonstration of ability to structure and present work in a clear and coherent way
- Evidence of reading and research
- Clear and accurate expression
- Students are advised to be aware of the revised “Senate Scale Classifications 2012/13 – Coursework.” These scales which provide general guidance on the standards required for the award of marks for coursework. These are available at:
- The marking grid based on the above Senate Scale Criteria will be the following:
| Senate Scale Criteria | Proportion of Marks % |
| Learning outcomes & scholarship | 35% |
| Argument & understanding, and Criticality & analysis
|
40% |
| Use of sources & evidence, written communication &
Presentation, and academic referencing |
25% |
| Total | 100% |
