Security analysis and portfolio management
Answer Two of the following three questions. Your answer includes a synthesis of recent and seminal academic literature, fully referenced, that relates to the specifics of the question. Clearly indicate what you consider to be the importance of each reference and provide a clear summary and conclusion.
Q (i)
In a sign of growing anxiety among policymakers, the Bank for International Settlements (BIS), the so-called central banks’ bank, warned on Monday (7th December 2020) of the “daylight” between elevated valuations and persistently uncertain economic conditions. “While markets have moved in the right direction in response to news about the vaccine, they are above or close to the levels that prevailed before the pandemic, when questions about overstretched valuations were already present,” said Claudio Borio, head of the BIS monetary and economic department. Critically assess how the financial markets globally reacted to the news of Covid-19 vaccine. (30 marks)
Q (ii) “Returns to Buying Winners and Selling losers have implications for stock market efficiency.” Critically assess what investors should be doing to maximise their total return. (30 marks)
Q (iii)
“According to International Monetary Fund (IMF) Director: Leading Cryptos Bitcoin (BTC), Ethereom (ETH) and Ripple’s can lead a cashless Society. Critically assess whether crypto industry is developing faster than others or is just a ‘passing fad’. (30 marks)
(Section ‘A’ Total 60 marks)
SECTION B Answer all questions in this section
Q2
Using the resources available in your domestic investment environment select any 4 bonds issued by Government and corporations relevant to you.
. Determine the current yield and yield-to-maturity for each bond. (8 marks)
. Evaluate the investment implications of yield curves. (6 marks)
. Explain factors that affect the price, yield or duration of fixed income securities. (6 marks)
(20 marks)
Q3 You are a portfolio manager for Jane and John:
Jane, age 37, has £40,000 to invest in a fixed-income security. She has invested in various types of bonds for 10 years, she considers herself to be an aggressive investor, and she is in the 28% marginal income tax bracket. Her primary goal is capital appreciation; income is a secondary consideration.
John, age 65, is retiring and has £150,000 to invest. He is interested in purchasing fixed-income securities to provide for his income needs during retirement.
John will not have any other substantial income, and he will be in the 15% marginal income tax bracket. He has invested in bonds in the past, and he plans to be actively involved in this investment.
Required:
Explain Green bonds and critically discuss their advantages and disadvantages. What type of investors invest in green bonds? (10 marks)
Explain pandemic bonds? Will you recommend these to Jane and John? (2 marks)
(c) Discuss the kind of securities is appropriate for Jane and John. (Consider type, risk rating, marginal tax bracket, term, and other relevant factors.)
(8 marks)
(Total 20 marks)
(Section ‘B’Total 40 marks)
[Total 100 marks]
