+1 862 207 3288 Question 1
a. Choose five companies quoted on the London Stock Exchange and calculate their Piotroski F-Scores. Show your workings.
[10 marks]
b. Choose two of these companies and carry out a fundamental valuation of the fair value of their share price using a Dividend Discount Model of your choice. State and justify all your assumptions.
[10 marks]
Total [20 marks]
Question 2
You are Chief Investment Officer at Aldgate Investments. You are concerned that the results of the forthcoming general election in the UK are very uncertain, and could lead to a period of extreme economic uncertainty for UK investors. An unexpected clear mandate for a strong government could lead to a resurgence in markets; whereas if no party can form a government there could be a prolonged period of instability for markets and interest rates.
Write a memo to your investment team advising them of steps you want them to take in managing your UK client discretionary portfolios to protect them as much as possible from any potential instability in equity and bond markets.
You are aware than some of your investment managers are relatively junior and have only experienced rising asset prices. Include in your report an explanation of your concerns and why you want them to take the steps you suggest.
Total [20 marks]
Question 3
Explain the difference to an investor between holding a long European Call and holding a short European Put position on a company’s shares.
[ 5 marks]
Illustrate your answer with labelled payoff diagrams using information on a company of your choice available at the link below:
http://markets.ft.com/Research/markets/DataArchiveFetchReport?Category=EQ&Type=UKOPT&Date=09/11/2014
Explain how these derivative positions differ from an investor holding a long position on the company’s shares.
[25 marks]
Total [30 marks]
Question 4
Using the FTSE Indices Total Return data provided produce a spreadsheet that contains:
a. The monthly total returns for each index, the mean return over the period, and the standard deviation of those returns.
[5 marks]
b. Construct the Correlation Matrix for the three indices:
100 Mid 250 Small
100
Mid 250
Small
[10 marks]
c. Create charts showing the possible risk and return combinations of 2 indices for each of the 3 different combinations
[5 marks]
d. Calculate the minimum possible risk attainable for each of the 3 combinations of investing in 2 indices. What return is earned for each of these 3 combinations?
[10 marks]
Total [30 marks]
Total exam [100 marks]
