User Account

All Pages

Portfolio Management, Financial Management

Assignment Help:
Portfolio Project
The purpose of this project is to help you to gain an understanding of how the stock market works and of the relationship between theory and practice.

You are given a notional £200,000 to invest and manage. You are required to follow an active trading policy at least in the first term. In the second term you can follow a buy and hold policy. Shares must be bought in multiples of 100 if the price is less than £2 and in multiples of 50 if the price is greater than £2. Debentures and Government stocks, which have a nominal value of £100 each, may be bought without restriction.

Commission is payable on all purchases and sales, at the following rates:

Ordinary Shares 1.0% of value (minimum: £10)
Government Securities 0.7% of value (minimum: £12.50)

You may invest in overseas securities, though all transactions must be in £ Sterling.

Transfer stamp duty is payable on all share purchases: the rate is £0.50 for every £100 or fractional part of £100.

There are no overdraft facilities nor additional sources of finance. Your cash balance must not become negative.

You are required to liquidate your holdings by Friday 22 March, 2013, and to submit your portfolio project, together with your transactions table, by Friday 29 March, 2013. When writing up the project, there is no need to describe every single transactions you have entered into (though every transaction should be listed in your transaction sheet). You should:

(i) Outline the portfolio theory that you have applied in your project.

(ii) Carefully explain your investment policy, giving examples of how you implemented it and explaining how and why it changed over the life of the project (if it did);

(iii)Explain carefully what brought about the changes (for example, knowledge you gained on the course or from practical experience);

(iv) Comment on your findings.

(v) Comment on the divergence between the theory you have learnt on the course and the practical problems of implementation;
(vi) Comment on the performance of the stock market in general and on what you think has influenced it over the life of the project;

(vii)Provide an assessment of how well your strategy has worked in terms of risk and return. This will require a brief comparison with other strategies, one such being a buy-and-hold policy.

(viii)Any limitations that you encountered.




Post plc and Reply plc are two companies that are in the same business risk class.

Post plc is financed by 60 million ordinary shares with a market value of 350p each and by £200 million 10% irredeemable debentures with a current market value of £125 each. Post plc has operating earnings before interest and tax of £85 million per annum.


Reply plc is financed by 10 million ordinary shares with a market value of 700p each and by £60 million 5% irredeemable debentures with a market value of £70.00 each. Reply plc has operating earnings before interest and tax of £20 million per annum.

Both companies have the same dividend policy in that they both do not retain any earnings, choosing instead to distribute all the earnings to their shareholders.

Mr Roberts is a shareholder in Post plc, with a holding of 2,000 ordinary shares. Mr Roberts is thinking of selling his shares in Post plc and buying shares in Reply plc as he believes he may be able to make a capital gain by doing so. Assume that Mr Roberts is able to borrow or lend at a rate of 10%.

The rate of corporation tax is given as 30%.
Required
(a)
(i) Calculate the after tax cost of equity, the after tax cost of debt, and the overall weighted average cost of capital for both Post plc and Reply plc. Explain what each of these represents.
[30 marks]
(ii) Mr Roberts has asked for your advice as he wishes to switch his investment from Post plc to Reply plc but still retain his investment profile. Carefully explain showing all calculations what actions Mr Roberts would have to take in order to achieve this position. Fully explain your answer. Would you advise Mr Roberts to go ahead with such a switch.
[55 marks]
(iii) Calculate Mr Roberts income position in Post plc and Reply plc both before and after the switch.
[15 marks]

Related Discussions:- Portfolio Management

Inflation and exchange rates, Inflation and Exchange Rates To understan...

Inflation and Exchange Rates To understand the impact of inflation, several terms should be understood. For example, inflation from the investors' standpoint must be clearly de

Buy side analyst, How to Industry analysis and finally stock picking from B...

How to Industry analysis and finally stock picking from Buy-side perspective

Explain the strategy for product development, Product development A str...

Product development A strategy which tends to increase sales by the development of new services or products to the same market for example an entirely new or improved existing

Explain in brief about financial management, Explain in brief about Financi...

Explain in brief about Financial management These tools help the manager to figure out which sources offer the lowest cost offunds and which activities will provide the greates

Explain how to compute the overall balance, Explain how to compute the over...

Explain how to compute the overall balance and discuss its significance. The overall BOP is defined by computing the cumulative balance of payments involving the current account,

Compute the expected stock price, 1. Using ratio analysis, compare your fif...

1. Using ratio analysis, compare your fifth year to the current year and discuss. 2. Compute the expected stock price at the end of the fifth year. Assume your stockholders hav

Why do we focus on cash flows instead of profits, Why do we focus on cash f...

Why do we focus on cash flows instead of profits when evaluating proposed capital budgeting projects? We focus on cash flows at the place of profits when evaluating proposed ca

Differentiate global and american depository receipts, What is Global Depos...

What is Global Depository Receipts American / Global Depository Receipts (ADRs/ GDRs) Equity shares which are offered in international markets to international investors a

Leverage, evaluate the importance of leverage in a small scale companyestio...

evaluate the importance of leverage in a small scale companyestion..

Calculate cost of equity, 1. Why do you think you are asked to perform valu...

1. Why do you think you are asked to perform valuation given an array of discount rates? a. Would it not be more accurate to utilize, for example, CAPM to calculate cost of equi

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd