4,500 words limit 36-HAVARD REFERENCING
This course work contributes 60% of the total marks available for continuous assessment on this module. The overall word limit is 4,500 words; the standard penalties for exceeding this limit will be applied. Please see the MSc in Finance Guide for details.
No specific word limits will be applied to the three individual questions on this. However, when you are allocating your word count, you should take account of the marks available for each question. Please answer all questions.
Learning outcomes
The following learning outcomes will be assessed:
be able to value individual bonds and equities using a range of approaches
gain an understanding of structured products, that is combinations of securities and derivatives which deliver a particular risk/return combination
understand the various risks inherent in investment and know how to use derivatives and other producst to hedge (mitigate) such risks
explain a forward rate and calculate spot rates from forward rates, forward rates from spot rates, and the value of a bond using forward rates
explain the effect of volatility on the arbitrage-free value of an option
explain the use of interest rate swaps and options to alter portfolio cash flows and exposure to interest rate risk.
Question 1
Shares of Comfortably Numb plc (CN) are currently trading at $8.50. You want to insure your portfolio of CN shares against losses and consider using stock options that are valued with the help of the binomial model. In any year, the stock will either increase in value by 12% or fall in value by 12% per annum. The annual risk-free interest rate is 1.75%. No dividends are paid by CN.
a.Construct a one-period binomial tree for the value of CN shares.
(3 marks)
b.Calculate the value of a European call option on one CN share with an exercise price of 8.90 using the one-period binomial tree.
(8 marks)
c.Is this European call in the money, at the money or out of the money? Justify your answer.
(2 marks)
d.Calculate the value of a European put option on the CN share with an exercise price of 9.50.
(6 marks)
e.Construct a two-period binomial tree (that is, covering two years) for the value of CN shares.
(2 marks)
f.Calculate the value of a European call option on one CN share with an exercise price of 8.90 using the two-period binomial tree.
(5 marks)
g.Why is the price in the two-period model in (f) different from the one in the one-period model in (b)?
(4 marks)
h.What considerations should there be when deciding which options to use to insure a portfolio of CN shares against losses? (No calculations are needed here.)
(5 marks)
(Total: 35 marks)
Question 2
a.In what sense do hedge funds hedge? In your answer, provide a definition of hedging, make reference to relevant strategies followed by hedge funds, and illustrate with real world examples.
(18 marks)
b.Compare and contrast the typical approaches to investment followed by hedge funds and those followed by mutual funds.
(12 marks)
c.Under what circumstances can hedge funds consistently generate a positive alpha for investors? You might find it appropriate for your answer to be related to ideas of efficient markets.
(10 marks)
(Total: 40 marks)
Question 3
A client has a traditional portfolio comprising bonds and equities. She is considering moving some of her investments into alternative assets. However, she is unsure what is meant by alternative assets and what are the particular features of this investment class.
You are required to write a report for your client explaining what is meant by alternative assets, citing at least three examples of how to access them and outlining key features and risks of the asset class. You should illustrate your answer with suitably referenced and appropriate data.
(Total: 25 marks)
PERSONAL INSTRUCTION FOR THE WRITER
Thank you, writer.
I am your new customer and I hope that you will hook me up with quality paper to retain me as your loyal customer.
I cannot pay for the whole 4,500 word as my professor has indicated. Please tackle the question 1,2,3, in 1000 words each as I have paid for what I can afford. Yet I have paid a lot of money despite unable to afford to pay for 4,500 words paper. Also, please spread the havard referencing across the three questions. Question 1, should have 12-references, Question 2, should have 12-references, and question 3, should have 12-references.
P.S – I will appreciate even if you go over the 1000 word count on each of the questions just as a gesture of goodwill.
Thank you soo much and I look forward to a quality writing / paper
Cheers
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