Comprehensive Financial Analysis and Investment Strategy Development
NSTRUCTIONS
1. Your report must provide answers for all five questions. Each question carries 20 points.
The total points for the report are 100. This report should be submitted via Online
submission point in Canvas. For submission deadline, please refer to the submission point
in Canvas.
2. The real world is complicated, and it is difficult, in practice, to determine the appropriate
market view, expected rate of return, and risk. There is no definitive answer to these
questions because your answer will depend on the assumptions you make and the
methods you use. State your assumptions clearly and say why you make them: state your
methods – which equations are you using, and why; display your working: let the marker
see your thinking. Arithmetical mistakes will not be penalised (unless they result in
implausible answers). Think about your answer – does it seem plausible?
3. You are expected to demonstrate evidence of a wide background of reading and research.
All references should be acknowledged (see Library handout on reference styles – Harvard
approach is strongly recommended). Good standards of written English and presentation
are expected and marks will be deducted if such standards are not met.
4. You are required to choose your individual share out of the index constituents covered by
Nasdaq. You can get information about index constituents of Nasdaq via this link here:
https://www.nasdaq.com/market-activity/stocks/screener.
5. You can extract Fama-French three factors from
https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html, which
provides a downloadable dataset.
6. There is an important Appendix at the end of this report, which provide the marking
rubrics and criteria used for marking your report.
7. The report should be no more than 2,000 words (+/- 10%) excluding the reference page(s),
bibliography and appendices (if applicable). Marks will be deducted for excessively short
or lengthy reports. A word count should be clearly displayed at the end of the report.
8. “Plagiarism is the practice of presenting thoughts, writings or other output of another or
others as original, without acknowledgement of their source(s).” All material used to
support a piece of work, whether a printed publication or from electronic media, should
be appropriately identified and referenced and should not normally be copied directly
unless as an acknowledged quote. Text translated into the words of the individual student
should in all cases acknowledge the source.
Before submitting the report, you must ensure that: any material that has been identified
as originally from a previously published source has been properly attributed by the
inclusion of an appropriate reference in the text; direct quotations are marked as such
(using “quotation marks” at the beginning and end of the selected text); and citations are
included in the list of references.
2
ASSESSMENT QUESTION: Please answer all questions. Each question carries 20 marks
1. a) Discuss your market view on the Nasdaq for the period from Jun 2024 to Jun 2025. Make
clear what your subjective probability for each of the possible market scenarios is during your
discussion on your market view and their corresponding returns for the index. Calculate the
expected return and its standard deviation. Please note, although it is your subjective market
view, you need to defend it using most recent macro-economic news, references and/or
historical data analysis. Historical data are available from either Bloomberg or other internet
sources (for example, https://finance.yahoo.com).
b) Compared with your market view, another analyst, Tom, holds a more optimistic market
view. He completely reduces the possibility of your most pessimistic market scenario to 0%
and adds this possibility to that of your most optimistic market scenario. Discuss to what
extent this possibility adjustment would affect his expected rate of return of Nasdaq and its
standard deviation.
2. Please choose a constituent company of the Nasdaq and conduct a regression analysis for
your chosen company using both CAPM model and Fama-French three factor model. Discuss
the risk characteristics for this chosen company using the output of your regression analysis.
Historical price data for individual shares can be collected from either Bloomberg or other
internet sources (for example https://finance.yahoo.com/).
3. There is a market wide concern on rising inflation and expected interest rate hike for the
coming year. One of your clients has changed his risk aversion degree A from a low level (A=3)
to a high level (A=4), with utility score function u(μ,σ) = μ ― 1
2Aσ2 . Based on your market
view from question 1, if the interest rate is to be adjusted from 4.0% per year to 8.0% per
year, discuss the process of constructing your client’s complete optimal portfolio using the
risk-free asset and the Nasdaq index portfolio as the optimal risky portfolio for this client.
Your discussion should be supported by relevant portfolio theories and clear calculation
outcomes.
4. Conduct a fundamental analysis of the chosen company in question 2. The analysis must
employ a Discounted Dividend Model (DDM) valuation approach.
a) You are required to demonstrate the forecasting process, backed up by relevant data
sources and references, for the price of this chosen share at Jun 2024 by using the variable or
constant growth rate for the coming 5 years from Jun 2024 to Jun 2029, and a realistic
constant growth rate assumption applied for the period beyond Jun 2029
b) Discuss your investment recommendation for this chosen share and explain your
reasoning.
5. Discuss why advanced stock markets may be more efficient in incorporating information
into share prices than developing markets. Your discussions should be supported by previous
empirical evidence in the literature.
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