Assignment: Financial Analysis
Exercise 1
Background
In this exercise from the 3 firms selected in Financial Analysis 2 You are to invest $10,000,000 of a special portfolio into both stocks and bonds evenly. The objective of the portfolio is to produce superior returns to those of the S&P 500 over the next 12 months.
Therefore, given the economic environment, the sector sensitivity and performance expected, 3 firms will need to be selected per industry that will outperform their sector.
Requirements (MUST FOLLOW THIS INSTRUCTIONS TO COMPLETE ANALYSIS) (I EXPECT CLEAR AND CONCISE ANALYSIS, PAY ATTENTION TO ENGLISH GRAMMAR AND STRUCTURE)
In order to meet all the requirements for the financial analysis exercise #3, you are required to complete the following tasks:
• Select stocks and bonds to purchase based on sector and industry analysis
• Use 3 methods to calculate relative value of stocks: dividend discount, Gordon model and P/E or other approvedmethod.
• Obtain the consensus earnings forecast for the firms
• Explain how this will affect the expected futureprice
• Obtain a consensus interest rateforecast
• How will this effect bondprices?
• How will this affect the roll down the yieldcurve
Deliver on time, Plan for power outages, personal emergencies, Typhoon and Cyclones. No excuse of being late or you be reported and will not get paid.
Exercise 2
Background
In this exercise, you will develop different strategies to hedge and enhance your portfolio returns. In addition, you will select, value and analyze the different options and determine how they will perform in three different markets characterized by different volatility.
Requirements
In order to meet all the requirements for the financial analysis exercise #4, you are required to complete the following tasks:
• Develop a strategy to use options or futures to hedge the market value and enhance the profitability of the portfolio. Identify strategies that will work best in each of the followingmarkets:
o Flat market - lowvolatility
o Rising market - moderatevolatility
o Rising/Fallingmarket-highvolatility
• Value the selected options for the strategies with the CBOE calculator found in Module8.
• Identify options that are in liquidity markets and describe the characteristics of the marketandthebroker'stradebook.
• Identify the implied volatility of eachoption.
• Identify the Greeks for theseoptions.
• How will the Greeks affect your decision to purchase these options in the different markets identifiedabove?
Additional Instructions
The first step is to develop a strategy using options or futures.
The hedge strategies could include, sellingcalls, buyputs, bullspreads, collars or what ever strategy you choose from those available.
Explain the strategy and how it will work, for example selling calls. Explain what you hope to accomplish with the strategy and how it will work in the three different markets listed below. The strategy be developed for both stocks and bonds and with options or futures could beused.
Discuss strategies that would work best in each of these different markets and explain why it wouldwork.
Discuss the option the value of the options in the market and those calculated with the CBOE calculator.
Calculate the implied volatility of each option in your strategy. In particular,
Discuss the Greeks and how they help understand the changes in the options value as result of those 5 different factors.
Discuss how volatility in particular would affect the value of the options/futuresselected.
Also, look discuss the open interest in the options/futures and whether that would affect your decision to trade that option.
Discuss the effect of open interest and tradingvolume.
Discuss the broker's trade execution book and what affect this could have on filling your option/future orders.
Attachment:- Financial-Analysis.rar