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

Types and causes of unemployment, Question 1: (a) Discuss the main limi...

Question 1: (a) Discuss the main limitations of using changes in national income as an index of economic welfare. (b) What are the alternatives measures and issues that sho

Accumulation option, It is a policy feature of permanent life insurance tha...

It is a policy feature of permanent life insurance that permits policyholders to left any dividends obtained with the insurer, where the dividends can gain interest. Accumulation o

Capital budgeting assignment, Assignment 2 Decision Tree Assessing Alterna...

Assignment 2 Decision Tree Assessing Alternatives in Capital Budgeting [see Bailes, J.C., and Nielsen, J.F. (2001, Winter). Using decision trees to manage capital budgets. Manag

Explain the cash and cash equivalents, Explain the Cash and cash equivalent...

Explain the Cash and cash equivalents Cash and cash equivalents include: Bank and cash balances Short term investments that are highly liquid and can be converted

Securities and exchange commission (sec), SEC is the Regulatory body for...

SEC is the Regulatory body for investor protection in the United States which is created through the Securities Exchange Act of 1934.

Margin trading, Margin Trading: Suppose an investor wants to buy 100 Re...

Margin Trading: Suppose an investor wants to buy 100 Reliance Energy shares, whose market price is Rs.500. This transaction requires Rs.50,000 but the investor has only Rs.30,0

Determine the term- time value of money, Determine the term- Time Value of ...

Determine the term- Time Value of Money If an individual behaves rationally, then he wouldn't equate money in hand today with same value a year from now. As a matter of fact, h

When they analyze pro forma financial statements, What do financial manager...

What do financial managers look for when they analyze pro forma financial statements? After the pro forma financial statements are finished, financial managers examine the

Compare financing arrangements and substantiate, North Star Company, a U.S....

North Star Company, a U.S. based MNC, is considering to establish a subsidiary to capitalize on the removal of Eastern European border restrictions. The subsidiary would manufactur

Price supports or acreage limitation programs cost society, Suppose the gov...

Suppose the government wants to increase farmers’ incomes.  Why do price supports or acreage limitation programs cost society more than simply giving farmers money? Price acrea

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