BAO3403: Investment and Portfolio Management - Case Study - Management Assignment Help

Assignment Task:

Instructions: This is an individual assessment and covers material you learnt in sessions 6 and 7. You are required to do it independently. Your answers will be not examined before the assignment is formally submitted to the drop box before the due time. Show all the formulas and detailed calculations you have performed. Show your name and student ID as a header in the word document. The maximum similarity score accepted is 20%. This assignment or part of it will not be accepted via email.

Case study 1

Part a. You are an investment adviser. One of your clients approaches you for your advice on investing in equity shares of Alpha Company. You have collected the following data: Earnings per share last year $4.00 Payout ratio 0.40 Return on equity 0.25 Cost of equity capital 0.20 The company plans to increase the payout ratio to 50% after year 5. Required:

i) Estimate the price of an equity share of this company using an appropriate dividend discount model and advise your client whether they should buy a share of the company.

ii) Your client is keen to know whether there are any positive growth opportunities from their investment. Explain to your client the meaning of this concept using appropriate calculations. 

Part b. You are a senior financial analyst of a firm based in Melbourne. Using the information you have collected above, perform calculations to explain to interns as to how the following are calculated:

i. Free cash flow to firm

ii. Free cash to equity

iii. Value of the firm according to the free cash flow to firm method

iv. Value of the firm according to the free cash flow to equity method

v. Estimated price of an equity share according to the free cash flow to firm method and the free cash flow to equity method Note: Round off the numbers to the nearest integer.

Case study 2

You are the portfolio manager of a large company that invests in many securities including corporate bonds. You have been assigned the task of bond portfolio management. You are provided with the following data in relation to bonds: Maturity period 7 years Coupon rate 12% Par value $1,000 Coupons on bonds are paid annually Yield to maturity of bonds 8%

Required:

i) Calculate the Macualay’s duration, modified duration and convexity

ii) Calculate the change in bond price when yield to maturity changes by one percent using modified duration

iii) Calculate the change in bond price when yield to maturity changes by one percent when convexity is considered

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