Posted: September 17th, 2017

a. Explain the Piotrowski F-Sore and how it can be used in Portfolio Management.

b. Choose three companies quoted on the London Stock Exchange and calculate their

Piotroski F-Scores. Show your workings.

c. Choose two of the companies from answer (b) and carry out a fundamental valuation

of the fair value of their share price using a Dividend Discount Model of your choice.

Justify your choice of the parameters you use in your Model. Compare your valuation

with the market share price and discuss any difference. State and justify all your

assumptions.

You are Chief Investment Officer at Aldgate Investments. You are concerned that global

stockmarkets are close to record highs, but that the world could face a number of shocks,

including continued uncertainty over Greece’s membership of the Euro and possible

instability in many oil producing countries, that could cause financial markets to fall.

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 short term 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.

Explain the difference to an investor between holding a long European Call on an equity and

holding a long position on the same company’s shares.

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

Using the Total Return data provided for the UK, German and Swedish equity markets

produce a spreadsheet that contains:

a. The monthly total returns for each country, the mean annual return over the period,

and the standard deviation of those annual returns.

b. Construct the Correlation Matrix for the three country indices:

Germany Sweden UK

Germany

Sweden

UK

c. Create charts showing the possible risk and return combinations for each of the 3

different combinations of investing in 2 countries

d. Calculate the minimum possible risk attainable for a portfolio investing in just the

German and Sweden equity markets. How much of the portfolio should be invested in

the German equity market, and how much in the Swedish equity market? What is the

expected risk and return of this portfolio?

e. Calculate Sharpe ratios for each of the 4 indices in the spreadsheet (Europe, Germany,

Sweden and the UK), and also for the minimum risk portfolio calculated in part (d).

Assume a risk free rate of 2% per annum.

Bond A has maturity of 20 years, a coupon rate of 6% (paid annually) and a yield to maturity

of 5.5%. Bond B has a maturity of 10 years, and an annual coupon rate of 4% and yield to

maturity of 4.5%. Both bonds are redeemable at par of100.

a. Calculate the price of each bond

b. Calculate the duration and modified duration of each bonds.

c. Which bond would you prefer if you thought interest rates were going to rise? Which

would you prefer if you thought they were going to fall? Give reasons for your

choices.

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