BAO3403 - Investment and Portfolio Management - Management Assignment Help

Assignment Task

Instructions: This assignment covers materials for sessions 8, 9 and 10. You are required to show all formulae and detailed calculations you have performed to arrive at final answers in order to receive full marks for each question. The maximum similarity index tolerated is 20%. Do not write the questions in your assignment. Upload your assignment with the names of all group members on the first page to the drop box by 23.59 on 15 September 2020. Individual and email submissions are not accepted.

Question 1

a. Using the following data for Beta Ltd., calculate the value of a call option and a put option using the Black-Scholes formula:

Current share price =$180
Exercise price = $175
Interest rate per annum = 6%
Dividend yield per annum = 2%
Time to expiration = 3 months
Standard deviation = 0.40 per annum

b. Assume you have purchased 100,000 equity shares of a listed company in Australia and want to sell these shares after 6 months to buy a house in Sydney. A call option and a put option on these shares are currently selling at $4 and $3, respectively. The exercise prices of the call and put options are $120 and $100, respectively. You intend to use either a protective put, a covered call, or a collar to protect the value of your portfolio. Calculate the value of your portfolio after 6 months for the following three market prices: $125, $110 and $90. Out of the above three strategies, which one is the best strategy? Justify your answer based on the calculations you have performed.

c. Using the data in a., calculate the value of the put option using the put-call parity relationship. If the current market value of the put option $9, explain the action you would take.

d. Using your calculations for part a. above, and find out the values of hedge ratios for the call and put option, respectively? Interpret the values of these hedge ratios.

e. Using your calculations for part a. above, calculate the elasticity of the call option and interpret its value.

f. Suppose you consider two portfolios. One holding 1000 calls and 300 shares of Beta company and the holding 900 shares of Beta company. Using appropriate calculations explain which portfolio has greater dollar exposer Beta’s price movements.

Question 2

You are a crude oil dealer. You intend to sell 50,000 barrels of crude oil in December. Each contract calls for delivery of 1,000 barrels of oil. Current futures price of one barrel of crude oil is $70. You believe that there are only four possible oil prices in December which are $50, $60, $70, and $80.

i. Explain what action you would take to protect from changes in oil prices in December. Provide reasons for your action.

ii. Calculate the total proceeds for each of the possible prices in December.

Question 3
a. Using the data in the table below and calculate the following performance measures.
i. Sharpe ratio
ii. Treynor measure
iii. Jensen’s alpha
iv. M-squared measure
v. T-squared measure, and
vi. Appraisal ratio (information ratio)

b. Out of the performance measures you calculated in part a., which one would you use under each of the following circumstances:
i. You want to select one of the funds as your risky portfolio.
ii. You want to select one of the funds to be mixed with the rest of your portfolio, currently composed solely of holdings in the market-index fund.
iii. You want to select one of the funds to form an actively managed stock portfolio.

Question 4
The following information relates to the performance of a manager in August 2020

Using the above data, answer the following questions:
a. Has the manager over-performed or under-performed?
b. What was the contribution of security selection to relative performance?
c. What was the contribution of asset allocation to relative performance?
d. Confirm that the sum of contribution of security selection to relative performance and contribution of asset allocation to relative performance equal manager’s total excess return in relation to the bogey.

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