Bus329 (Investment Analysis)

Last examination paper

September trimester 2020

Last examination paper directions:

• This examination paper comprises 5 descriptive/conceptual and numerical questions of equal marks. All questions should be answered.
• For numerical/calculation-based questions, you could present all obligatory/related workings. A single reply won’t be accepted with out these workings.
• You have to to sort on the examination paper. Since it’s a Take-Residence take a look at, please observe that your accomplished examination paper will endure Urkund for plagiarism.
• That is an open e-book examination. You can be given 14 hours time to obtain the examination paper, full the examination and add the examination paper with solutions inside this 14-hour window.
• The examination paper with solutions should be uploaded in phrase format.
• Complete mark is 50.

Title:

Pupil ID:

[1(a)] Consider the informational and consumption timing roles of economic market close to the current COVID19 pandemic. (6 marks)

Kind your reply right here:

[1(b)] “The successes or failures of the monetary property we buy rely upon the efficiency of the underlying actual asset” – clarify this assertion with instance. (four marks)

Kind your reply right here:

[2] Mr. Tom is a danger averse investor. Earlier than the COVID19 pandemic (i.e., pre-COVID19 interval) his danger aversion coefficient was 2 and his optimum investments in a dangerous portfolio and risk-free asset had been AU$60,000 and AU$ 40,000 respectively. Commonplace deviation of his full portfolio was 21% and risk-free charge was 5%.

In the course of the COVID19 pandemic Mr. Tom turns into extra danger averse and his risk-aversion coefficient will increase to four. Danger-free charge drops to three% and return on dangerous portfolio will increase by 2% (i.e., if the pre-COVID19 interval return on dangerous portfolio is X%, return on dangerous portfolio throughout the COVID19 disaster turns into X% + 2%) and normal deviation of dangerous portfolio rises to 45%. Based mostly on these information, compute the next for Mr. Tom:

(a) Optimum funding proportion throughout COVID19 disaster interval in dangerous portfolio

(b) Commonplace deviation of full portfolio throughout COVID19 disaster

(c) Anticipated return of full portfolio throughout COVID19 disaster

(d) Touch upon the adjustments in Mr. Tom’s funding proportions in dangerous portfolio and risk-free asset between pre-COVID19 and through COVID19 intervals.

(You will need to present all workings)

(10 marks)

Kind your reply right here:

[3(a)] Mr. Anderson invested AU$200,000 in inventory market in December 2019. He bought 5,000 shares of ABC Firm at AU$40 per share. Anticipated charge of return on ABC inventory and S&P/ASX300 had been 14% and 12% respectively on the time of buy. The speed on T-bill issued by Reserve Financial institution of Australia (RBA) was four% in December 2019.

Mr. Andrew, neighbour of Mr. Anderson, claims that he’s smarter than Mr. Anderson in inventory market buying and selling. He additionally invested AUD$200,000 within the shares of XYZ Firm, which had an anticipated charge of return of 16%. Each Mr. Anderson and Mr. Andrew get pleasure from the identical risk-free charge and market return (return on S&P/ASX300). Use CAPM to reply this Question Assignment (assume each shares are pretty priced).

• Who invested within the riskier share? With none calculation clarify your reply in phrases. (2 marks)
• Now clarify your reply in (a) above with numerical calculation (you could present all related workings) (three marks)

Kind your reply right here:

[3(b)] COVID19 pandemic has vital impression on inventory market. Some shares expertise vital decline in costs, whereas costs of some shares present upward momentum. Traders are constantly retaining their eyes on inventory market to seek out mis-priced shares. One in all your neighbours is new in inventory buying and selling and has inadequate information in monetary Assessment. He is aware of that you’re learning funding Assessment unit. So, he approached you with the next information and seeks your Help to make funding selections.

Inventory	Precise return (%)	Beta	Market danger premium and risk-free charges are 6% and four% respectively. [i] Which mannequin will you utilize in your Assessment and why? (1 mark) [ii] What shall be your suggestions concerning these 4 shares? You will need to present all related numerical calculations for every inventory it’s worthwhile to make your suggestions (four marks)
A	11	1.20
B	9	1.10
C	13	1.25
D	12	zero.90

Kind your reply right here:

[4(a)] Mr. X invested in a portfolio of risk-free asset and a dangerous portfolio. Mr. X’s full portfolio consists of 40% funding in risk-free asset and 60% funding in dangerous portfolio. Mr. Y invests 100% in the identical dangerous portfolio. Anticipated return on Mr. Y’s dangerous portfolio is 15%. Assume each Mr. X and Mr. Y are on the identical Capital Allocation Line (CAL). If the risk-free charge is 5%, what’s the anticipated return on Mr. X’s full portfolio? (four marks)

Kind your reply right here:

[4(b)] If the usual deviation of the dangerous portfolio is 20%, numerically show that each Mr. X and Mr. Y are on the identical CAL (three marks)

Kind your reply right here:

[4(c)] Now assume that investments in dangerous portfolio as indicated in [4(a)] above are optimum for each Mr. X and Mr. Y. It’s obvious that Mr. X is extra danger averse than Mr. Y, since Mr. Y invests 100% of his fund in dangerous portfolio, whereas Mr. X invests solely 60%. Numerically derive a worth to show that Mr. Y is much less danger averse than Mr. X. You will need to present all related calculations (three marks).

Kind your reply right here:

[5(a)] A four-month name choice with $60 strike value is presently promoting at $5. The underlying inventory value is $59. The chance-free charge is 12% p.a. The put with similar maturity and strike value is promoting at $three.5. Can an arbitrageur make riskless revenue? If ‘YES’ what methods an arbitrageur ought to take to make this revenue? Present your calculation to Help your reply (four marks)

Kind your reply right here:

[5(b)] In case your reply to five(a) above is ‘YES’, calculate the arbitrage revenue by finishing the next desk exhibiting technique (i.e., whether or not shopping for or promoting put/name portfolio); place, fast money flows and money flows at expiry (i.e., in four months) (6 marks)

Full the next desk (you could present obligatory workings under the desk)

Technique	Place	Quick money flows	Money movement in four months
ST < $60	ST ≥ $60
Complete

[END OF EXAM PAPER]

FORMULA SHEET (BUS329)

5. Efficient annual charge:
6. Annual share charge:
13. Optimum capital allocation to dangerous portfolio:

1. Portfolio weights when correlation between two dangerous property (D & E) is -1: ;
4. Portfolio return in (equally weighted) single index mannequin:

1. Portfolio variance in single index mannequin:
2. Capital Asset Pricing Mannequin (CAPM):  
3. Portfolio beta:
4. Complete danger in index mannequin:
5. Covariance in index mannequin:
6. Correlation in index mannequin:  
7. R-square in index mannequin:
8. Irregular return =