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Purpose

This task develops and evaluates student understanding and application of securities valuation, optimal investment decisions and modern portfolio theory

Description

Students apply critical thinking and problem solving to answer four problem questions that require numerical calculation and clear written communication of results.

Assessment Criteria

The assignment will be graded against the following five (5) criteria:

Correct calculations.
Depth and relevance of analysis.
Logic and coherence in information evaluation and organisation.
Demonstrated understanding of theory and relevant concepts
 Clarity of written expression in communicating outcomes Topics Covered: Module 3 (Modern Portfolio Theory)

Tasks: This assessment involves undertaking four (4) main tasks as follows:

Task 1: Calculating Equity Beta 

Select a company (we shall call this Equity A) listed on a major stock exchange. Ensure that you can access and download historical share price data for the selected company and an appropriate benchmark (market) index. There are various sources of data available (for free) online, such as Yahoo Finance. Download the data (usually this downloads as a .csv file) and save it into an Excel Workbook.

a) Using Excel, calculate the returns on your selected equity and the benchmark index over the last 4 years (2 marks).

b) Calculate the Beta for your selected equity

c) Comment on the performance of your chosen company and the implications of the estimated Beta

d) Discuss potential problems associated with how you have calculated your Beta

Task 2: Calculating 3-Asset Portfolio Metrics (9 marks)

Select and download historical data (for the last 4-years) on the share prices of two additional companies (we shall call these Equity B and C) listed on the same stock exchange as Equity A. You now have data for three equities, which represent your 3-asset portfolio.

a) Calculate the individual returns, variance and standard deviation of returns on your (three) selected equities (note: you have already calculated the returns on Equity A in Task 1)

b) Calculate the covariances and correlation coefficients between your equities

c) Assuming an equally-weighted portfolio, calculate the portfolio rate of return, variance and standard deviation

Task 3: Evaluating Portfolio Risk and Performance

a) Calculate the Beta for your equally-weighted 3-asset portfolio (i.e. containing Equity A, B and C).

b) Utilising appropriate measures of portfolio performance, comment on the performance of your portfolio and the implications of the estimated portfolio Beta.

c) If you believe the stock market will begin to drift downwards over the next year, explain how you might ‘fine-tune’ your 3-asset equity portfolio to help safeguard investors’ wealth under your management? Assume that your fund can only invest in equities

Task 4: Individual Equity Selection 

Based on the preceding analysis, if you are only allowed to pick one equity (A, B or C) for investment, which asset will you prefer as a rational investor? Explain your reason(s)

Additional Information & Guidance

Data Sources, Analysis & Critical Reflection

To assist you with some of the necessary Excel calculations these YouTube videos should be very
useful: https://www.youtube.com/watch?v=zlClflcSrM8

Your report should include detailed step-by-step coverage of how you undertook each stage in the task(s). This should also demonstrate an awareness of data issues and a degree of critical reflection of the outcomes of each task. References should be included where appropriate.

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