Financial Analysis and US Equities   Assessment Guidelines 3

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Financial Analysis and US Equities
 

Assessment Guidelines 3. Case Study

This assessment comprises an individual assessment, that should be no longer 3.1 Background Information than 2,000 words (410%), excluding the title page, executive summary, table of contents, tables and figures, relevant appendices that have been included, and the You have recently been hired by Westminster Consultants LLP as a one of the list of references and separate bibliography. financial analysts covering their US equities desk. They have been approached by one of their high-net worth clients to provide investment advice as to which equity link_provided, which can be found in the Assessment section under Course rates, would affect prevailing interest rates in the US, and therefore the opportunity

Content on the module Blackboard site. Students will not be required or able to cost of capital for their investments; how these changes would affect the intrinsic submit any Excel files with calculations. values of their equity securities; and what trading signal you might give for each security when they review their portfolio composition on 18 February 2023.

Students should note the following:

1. Students are expected to answer all parts of the assignment. Following discussions with Westminster Consultant's US economics desk, you are

; aware that to try and reduce the US inflation rate, the US Federal Reserve engaged

2. In terms of presentation: in matched sale-purchase transactions, thereby increasing the current number of

(a) The assignment should be produced in Microsoft Word and the report short-term US T-bills issued and decreasing the supply of money. The US

should be Times New Roman, 12pt, with 17% line spacing. economics desk also informed you that he real yield (net of inflation) on 1-year US

(b) Do not include your name within the file name or anywhere within your T-Bills is currently 4.07% per annum on 1° February 2023, while the current US

submission. The submission will be subject to anonymous marking. Having inflation rate for the year up to 1*t February 2023 was 6.40% per annum.

logged into Turnitin on Blackboard, the system will record your details

anonymously and tutors will only see your name after the entire submission In your initial meeting with the client, they indicated that they had initially

has been assessed and provisional marks have been released. considered investing in shares in five companies, i.e., Apple, Chevron, Coca Cola,

(c) The coursework is expected to have a title page, an executive summary Procter & Gamble, and Walmart, but following the recommendations of their broker

and a table of contents. they had chosen to only invest in three of these at that time. They purchased the

(d) All tables, figures and appendices should be clearly labelled. Marks will be shares on 1* February 2022, with the intention of holding these shares for one

deducted should this not be done. year, following which they would then reconsider the composition of their equity

(e) The essay should follow the structure outlined in the details of the portfolio (i.e. on 1s February 2023). You are also aware that the client’s current

assessment, below. real discount rate is equal to the current real yield on 1-year US T-Bills.

3. Students are required to correctly reference any material used in the

preparation of the coursework, using the Westminster-Harvard style of 3.2 Client Requirements

referencing, and include a list_of references as well as a separate

bibliography at the end of the coursework. Marks will be deducted for incorrect Given the information above, the client would like you to provide them with a report

referencing or incorrect citations. detailing the impact of the US Federal Reserve's decision to decrease the supply

4. Students will be required to submit the assignment online and are therefore of money in the US economy, details of the current returns and valuations of the

required to familiarise themselves with how to do this well ahead of the equity products, and recommendations as to any changes that you might

deadline. If you have technical difficulties when submitting the coursework, you recommend that they make to their investment portfolio. They would like the report

will have to raise a ticket with IT Services and apply for mitigating circumstances to particularly address the following points:

using the relevant form. 1. Discuss why the US Federal Reserve's decision to reduce money supply by

5. Any submission by email is not acceptable and will not be marked. engaging in matched sale-purchase transactions would increase interest rates

2. Calculate the respective holding period return and level of risk on each of the Walmart Inc paid out the following dividends to shareholders over the period

three shares that they initially invested in (choose any three of the five shares between 1‘ February 2022 and 1° February 2023:

discussed above to include in the initial portfolio).

3. Discuss and differentiate between the different approaches that could be used

to calculate the intrinsic values of equity securities and highlight the best

method to use in this case, providing reasons for your decision.

4. Calculate the respective intrinsic value for each of the three individual shares

as at the 1S February 2023, given the following information regarding the 5. An indication of whether each of the respective shares is currently undervalued,

respective dividends on these shares during the investment period: .

trading at par, or overvalued, as of 1° February 2023.

Apple Inc paid out the following dividends to shareholders over the period . . . . . . .

between 1% February 2022 and 1° February 2023: 6. Given the information in point 5, above, what respective trading

recommendation would you make for each of the three shares.

,

SS Tips for ine Repon

e Download the respective closing prices for each of your selected shares over

the period between the 15! February 2022 and 1% February 2023 from Yahoo

The Chevron Corporation paid out the following dividends to shareholders Finance (do not use the adjusted closing prices).

over the period between 1°! February 2022 and 1° February 2023: e The respective tickers for each stock are as follows:

[Company Theor

The Coca-Cola Company paid out the following dividends to shareholders

over the period between 1*' February 2022 and 15! February 2023: J J J J . J

e Alink will be provided where students can check their work for plagiarism prior

to submitting the final draft of their coursework.

3.4. Structure of the Report

The report should be structured as follows:

The Procter & Gamble Company paid out the following dividends to 1. Cover page, which should contain:

shareholders over the period between 18 February 2022 and 1% February 2023: (a) A relevant title for the report.

(b) The total word count for the report (which would exclude the title page,

executive summary, table of contents, any tables and figures, appendices,

bibliography, and references),

2. Table of contents, which should contain:

(a) A full list of sections within the report (including the executive summary,

references, bibliography, and appendices but excluding the cover page).

(b) The page number of which each section begins.

 

3. Executive summary, which should: 10. Appendices, which should:

(a) Briefly highlight the background, aim, and key findings of the report. (a) Provide explicit formulae for all of the calculations listed above.

(b) Be in the third person and use the present tense, e.g. “This report (b) Each calculation should have its own appendix, which should be clearly

compares...”. labelled accordingly.

4. Introduction, which should: (c) Include any other material that you feel may be relevant but does not

(a) Provide a brief background to the report and what the client wants to find warrant being included in the report.

out, highlighting the current global issues with rampant inflation.

(b) Give a succinct explanation of the main aims and context of the report.

(c) Have a sub-section that provide definitions of key terms used in the report.

5. Monetary policy overview, which:

(a) Should provide a discussion of the impact that the US Federal Reserve's

response to the “cost of living crisis” would have on prevailing interest rates.

(b) Should cite relevant academic sources (textbooks and academic articles)

that support this argument.

6. Discussion on financial securities, which should:

(a) Contain respective valuations for each of the equity securities outlined in the

case study following the policy recommendations.

(b) Differentiate between the different pricing models that could be used in the

valuations and why the specific model used was chosen.

(c) Contain a comparison of the respective holding period returns and risk

levels for each of the equity securities outlined in the case study.

7. Conclusion, which should

(a) Briefly summarise the key findings of the report and how these meet the

aims set out in the introduction.

(b) Provide recommendations as to which of the equity securities outlined in the

case study would provide good investment opportunities and therefore the

ultimate composition of the portfolio

(c) Contain justifications for any recommendations made.

8. List of references, which should:

(a) Provide the reference details of any material that was cited in the report

using the Westminster Harvard referencing system.

(b) Details of the Westminster Harvard referencing system can be found at

https://www.westminster.ac.uk/current-students/studies/study-skills-and-

training/research-skills/referencing-your-work

9. Bibliography, which should:

(a) Provide the reference details of any other sources that you may have

referred to when preparing the report but not actually cited in the report itself

using the Westminster Harvard referencing system).