financial markets assignmet

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please answear all questions as accurate as possible and all calculations and formulas need to be showing and when asked to interpret or explain please use correct English grammar and proper spelling as this as got to meet the united kingdom standards.. Document Preview: 1 Fin-40002 Financial Markets Assignment 3 The following is the third of three exercises that form the coursework assessment component for Fin-40002. The coursework is worth 15% of the total marks overall and these marks will be based upon the best two exercises of the three you submit (30% in total). Each exercise is equally-weighted. You must submit all three Assignments. The Assignment must be your own work: it is not a Group Work activity. The penalties for plagiarism and collusion are severe and may result in you being awarded a zero mark for the Assignment or the module. Answers must be presented clearly and marks will be awarded for presentation. You must show all calculations and necessary working out. Answers not showing supporting calculations will be awarded zero. Hand-in Date: 10 pm, Wednesday 18th December 2013
Darwin Lecture Theatre: late submissions awarded zero. Answer ALL questions: 50 Marks 1. Suppose that the market contains three stocks, A, B, and C and two systematic risk-factors 1 and 2 that have the following relationship: E(rA) = 1.2?1 + 2.0?2 E(rB) = -0.2?1 -0.4?2 E(rC) = 0.5?1 + 0.8?2 The zero-beta return, ?0, equals zero and all three stocks currently sell for 240 pence. a. If the risk-premium on factor 1 is 6% and the risk premium on factor 2 is 8%, calculate the price expected next year on each stock assuming that none of them will pay a dividend b. Following analysis of the stocks you are convinced that the price of each stock in one year will be PA = 310, PB = 235, PC = 265. Create and demonstrate a riskless, arbitrage investment that takes advantage of any mispricing. c. Assuming that prices move as your analysis predicts, what is the profit from your investment? 2 2. Trent Fixtures expects net cash flow of £50,000 in perpetuity if the firm makes no new investments. The firm has the opportunity to add a new production line to the business. The immediate outlay for this opportunity is £100,000 and the net cash flows from the line... Attachments: Assignment-3-....pdf Dec 10 2013 06:38 PM

 

Solution ID:608932 | This paper was updated on 26-Nov-2015

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