Reference no: EM133133867 , Length: word count:3500
AFE5013-B Multinational Finance and Investment - University of Bradford
Part 1: QUESTION 1. (500 words maximum)
Please read the instructions carefully. The following questions are related to the following risky securities issued by:
Sainsbury: J Sainsbury PLC (Reg. no: 00185647). The holding company whose subsidiaries engaged in the food, general merchandise and clothing retailing, and financial services activities in the United Kingdom.
BAT: British American Tobacco PLC (Reg. no: 03407696). The holding company owns, directly or indirectly, investments in the numerous companies constituting the British American Tobacco Group activities include the manufacture, distribution or sale of tobacco and nicotine products.
GSK: Glaxosmithkline PLC (Reg. no: 03888792). It manufactures various pharmaceutical products.
Required:
Choose from the above three, two securities of interest to you to address the following questions:
a) Calculate the monthly rates of return for each of the chosen securities
- Your calculation should be using the monthly closing stock prices from December 2012 to December 2019 published in FAME (Financial Analysis Made Easy) database. The figures in FAME have been adjusted based on the stock split/dividend ratio. (Note: Students are required to learn how to use FAME database to extract the required financial information).
- You can use Microsoft Excel functions to expedite your calculation, but please show the mathematical formula used.
- Please show rates of return up to three digits after decimal point. For example, 0.000 instead of 0.000%.
b) Based on your calculation in (a), calculate for each of the chosen securities:
i. Average monthly rate of return (Note: Assume each monthly return has equal chance to occur).
ii. Standard deviation of the monthly rates of return in the sample.
(You can use Microsoft Excel functions to expedite your calculation. Please show answers up to three digits after decimal point)
c) Calculate the weighted average rate of return and standard deviation of returns for the portfolio containing the combination of your two chosen securities in varying weights as indicated below. Then, choose a recommended portfolio. Summarize your answers in the following table. For example, for Sainsbury - BAT portfolio:
|
|
Weight
|
Weighted average rate of return
|
Standard deviation of returns
|
Recommended portfolio (please tick √
only one)
|
|
Portfolio
|
Sainsbury
|
BAT
|
|
1
|
0.0
|
1.0
|
|
|
|
|
2
|
0.1
|
0.9
|
|
|
|
|
3
|
0.2
|
0.8
|
|
|
|
|
4
|
0.3
|
0.7
|
|
|
|
|
5
|
0.4
|
0.6
|
|
|
|
|
6
|
0.5
|
0.5
|
|
|
|
|
7
|
0.6
|
0.4
|
|
|
|
|
8
|
0.7
|
0.3
|
|
|
|
|
9
|
0.8
|
0.2
|
|
|
|
|
10
|
0.9
|
0.1
|
|
|
|
|
11
|
1.0
|
0.0
|
|
|
|
d) For each of the portfolios in (c) above, plot the portfolio risk-return for different weights of assets (Note: For the risk-return plots, return is on vertical axis and risk is on horizontal axis). Discuss what do you learn from this analysis.
QUESTION 2. (1000 words maximum)
a) Critically discuss several measures of a financial asset's risk and the underlying assumptions. Support your answer by citing relevant theories or models covered in this module.
b) By referring to relevant theories or models covered in this module, critically discuss factors that could plausibly influence the expected return on an investment in a financial asset.
c) Critically discuss the significance of efficient market hypotheses in investment or financing decisions.
Part 2: Answer ALL the questions.
Question 3. (1000 words maximum)
a) By showing your calculations, justify which bond will be more sensitive to interest rate changes:
|
|
Bond A
|
Bond B
|
|
Par value
|
£,1,000
|
£1,000
|
|
Term to maturity
|
5 years
|
5 years
|
|
Annual coupon rate
|
4%
|
5%
|
|
Frequency of coupon payment per year
|
Twice
|
Once
|
|
Yield of bonds in similar risk class
|
4%
|
8%
|
b) Critically discuss several ways that can be implemented to estimate and manage bond's interest rate risk in the context of bond investment or financing strategy.
c) Describe some embedded options that can be added to bonds and critically discuss potential advantages to bond issuers and/or bondholders.
Question 4. (1000 words maximum)
a) A US investment firm receives an invoice of £200,000 from a UK consulting firm. The spot rate of pound when the invoice was received was $1.50. The invoice should only be paid six months from now. Forecasted spot rates six months from now are given as below:
|
Forecasted rate
|
Probability
|
|
$1.43
|
0.20
|
|
$1.46
|
0.70
|
|
$1.52
|
0.10
|
The six-month forward rate is $1.47. A call option on pounds that expires in six months has an exercise price of $1.48 and a premium of $0.03. A put option on pounds that expires in six months has an exercise price of $1.49 and a premium of $0.02.
Required:
If the invoice is to be paid six months from now, illustrate by showing your calculations, whether the firm will be better off by using forward contract to hedge the forex transaction risk.
b) Describe and discuss several ways that multinational firms can implement to manage exchange rate risk.
c) Critically discuss whether the emergence of cryptocurrencies can disrupt the international monetary system.
Attachment:- Multinational Finance and Investment.rar