Assessment Brief

Programme: BA (Hons) Finance and Investment Management

Module Code: AF5008

Module Title: Financial Mathematics and Statistics

Submission Time and

15th January 2022 by 23:59 GMT
Date:

Word Limit: 1500 words + Excel spreadsheet with supporting calculations.

Weighting This assignment accounts for 100% of the total mark for this
module

Submission of Electronic Management of Assessment (EMA): Please note

Assessment that your assignment is submitted electronically online via
Turnitin by the given deadline. You will find a Turnitin link on
the module’s ELP site.
It is your responsibility to ensure that your assignment arrives
before the submission deadline stated above. See the
University policy on late submission of work.

Instructions on Assessment:

Section A (30 Marks, maximum 500 words)

Download monthly share price data covering the most recent 5-
year period for five companies of your choice within the FTSE 100
index and perform the following tasks:

1. Calculate monthly simple returns on shares of the selected (5 marks)

companies and comment on the data referring to appropriate
descriptive statistics measures.
2. Construct a variance-covariance matrix of the returns and (5 marks)
present the results in an appropriate matrix format.
Comment on the key features of this matrix.
3. Calculate the expected return of an equally weighted (10 marks)
portfolio of the five companies.
4. Calculate the standard deviation of the above equally (10 marks)
weighted portfolio using matrix algebra. Briefly comment on
the trade-off between risk and return.
Show all calculations and formulas in the first sheet of the submitted
spreadsheet.

Section B: (30 marks, maximum 500 words)

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Download monthly share prices of five UK investment trusts of your
choice for the period October 2010 to October 2020 (10 years at
monthly frequency). Also download data from the FTSE All Share
Index for the same period. Convert all prices into logarithmic
returns for the period and perform the following tasks:

1. Estimate the below linear regression model for each of the

five investment trusts and explain which one of them is the
riskiest and why.
Ri , t=α i + β i . Rm , t + ε i ,t (10 marks)

Please assume the following in the next task:

The dependent variable(R¿¿ i , t)¿ is the return of each of the five
UK investment trusts. The independent variable ( Rm , t ) is the return
on the FTSE All Share Index (used as a proxy for market returns).
Present the results of the above regression model in a suitable
tabular format. .

2. Based on the results of the above regression model, identify

the investment trust with the best risk-adjusted performance
over the sample period. Briefly explain your selection.
Calculate the R-squared of the above regression model and
comment on the amount of variation in the returns of the five
investment trusts(R¿¿ i , t)¿ which is explained by the
variation in the returns of the market (Rm ,t ). (10 marks)

3. Estimate the variance-covariance matrix of the returns of the

five investment trusts and calculate the β i for each trust. You
should present all the formulas and calculations together
with the explanation of the meaning of the coefficient. (5 marks)

4. Explain the main assumptions made in estimating the

regression models in question 1 above. (5 marks)

Show all calculations and formulas in the second sheet of the submitted
spreadsheet.

Section C (40 marks, maximum 500 words)

Download and record the following information relating to the bond issued by
Legal and General Finance Plc from London Stock Exchange. Use the following
link:
https://www.londonstockexchange.com/stock/71PP/legal-general-finance-plc/
company-page

a. Face value per bond (par value)

b. Closing Market Value per bond
c. Coupon rate
d. Frequency of coupon payments
e. Next Coupon payment date (only the month and the year)

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 f. Maturity date (only the month and the year)

Address the following tasks based on the information that you have recorded on a
given date (this must be the day on which you chose to perform the data collection
exercise for this task)
1. Express the market price of the bond along with other
relevant information that you recorded above in terms of the
relevant polynomial equation. (10 marks)
2. Calculate the market value of the bond using the above
information and assuming the yield to maturity (YTM) of 5%.
(10 marks)
3. Calculate the market values (NPV) of the bond for a range of
YTMs and present the result as a graph and a table. (10 marks)
4. Calculate the actual YTM of the bond by using linear
approximation. You must clearly explain the steps involved
and present the linear equation. Assume that the market
price of the bond is the clean price. (10 marks)
Show all calculations and formulas in the third sheet of the
submitted spreadsheet.

Instructions on Assessment

• Excel file containing tables, formulas and all calculations should be submitted
together with the main word document. The word document is subject to the
wordcount (see below for further instructions).
• Submit your work through the Assessment folder of the Blackboard site. Make sure
you submit both Excel and Word files.

Please turn over

ASSESSMENT REGULATIONS

You are advised to read the guidance for students regarding assessment policies. They are
available online here.

Late submission of work

Where coursework is submitted without approval, after the published hand-in deadline, the
following penalties will apply.

For coursework submitted up to 1 working day (24 hours) after the published hand-in
deadline without approval, 10% of the total marks available for the assessment
(i.e.,100%) shall be deducted from the assessment mark.

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Coursework submitted more than 1 working day (24 hours) after the published hand-in
deadline without approval will be regarded as not having been completed. A mark of zero
will be awarded for the assessment and the module will be failed, irrespective of the
overall module mark.

These provisions apply to all assessments, including those assessed on a Pass/Fail basis.

The full policy can be found here.

Word limits and penalties

This is a 1,500 word assignment. If the assignment is within +10% of the stated word limit no
penalty will apply.
The word count is to be declared on the front page of your assignment and the assignment
cover sheet. The word count does not include appendices, glossary, footnotes, tables,
figures, and charts.

Please note, in text citations [e.g. (Smith, 2011)] and direct secondary quotations [e.g. “dib-
dab nonsense analysis” (Smith, 2011 p.123)] are INCLUDED in the word count.

The full Word Limit Policy is available here.

Academic Misconduct

The Assessment Regulations for Taught Awards (ARTA) contain the Regulations and
procedures applying to cheating, plagiarism and other forms of academic
misconduct.
The full policy is available at here.

You are reminded that plagiarism, collusion, and other forms of academic misconduct as
referred to in the Academic Misconduct procedure of the assessment regulations are taken
very seriously. Assignments in which evidence of plagiarism or other forms of academic
misconduct is found may receive a mark of zero.