Financial markets: risk and return

Financial markets: risk and return

On completion of the course of study, students should be able to:

1. Demonstrate an understanding of the basis of risk aversion and the measures of risk and return.

2. Demonstrate an understanding of the risk/return characteristics of
bonds and ability to calculate and interpret measures of risk and

3. Demonstrate an understanding of the main valuation models applied to shares and be able to apply and interpret them with real world data

Financial Markets: Risks and Returns
Coursework scenario and requirements

You are working for a firm of financial advisors and have been asked to make a contribution to a presentation for some private investors who are considering retaining your services to invest a substantial amount of money.
Prepare a presentation on the historic performances of two main asset classes, bonds and shares. You should submit a hard copy of your presentation with either 2 or 4 slides on a page. You may assume that the private investors have no previous experience of investing.
a). Clearly distinguish between the two asset classes focusing on their similarities and differences for investment purposes. (10 marks)? (10 marks)

b). Evaluate the key sources of risk associated with these two asset classes that might affect potential investments and the steps that combine return and risk. (10 marks)

c). Using a real life example of a share price over a period of time to illustrate the different buy, sell and hold decisions made by a chartist and a fundamental analyst.
(10 marks)
d). Explain each of the following and describe how they might be used by fixed- income investors: a) zero-coupon bonds, b) junk bonds and d) Yankee bonds. (10 marks)

e). Evaluate the performance of these asset classes over the last 20 years. You will need to use the full range of statistical tools available to you including, mean, range and standard deviation. The use of other statistical tools such as correlation and regression will earn marks. You will need to use the results of your statistical analysis to provide a presentation suitable for your private clients. (20 marks)

Marks will be awarded for the presentation of your slides which should not be over busy or have too much information on each one. You may include notes with your slides if you wish to. Your answer is going to require some statistical analysis. You should submit that in addition to your slides. Marks are awarded for data collection and data analysis as well as your powerpoint slides.
You are not required to predict future performance of asset classes.
[Total 60 marks]

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