finance homework

as in the file

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment-3
FIN 424 – Portfolio Management
Due Date: 02/12/2023 (End of Week-14) @ 23:59
Course Name: Portfolio Management
Student’s Name:
Course Code: FIN 424
Student’s ID Number:
Semester: First
CRN:
Academic Year: 2023-2024
For Instructor’s Use only
Instructor’s Name: Dr Jyoti Agarwal
Students’ Grade: Marks Obtained / Out of 10 Level of Marks: High/Middle/Low
General Instructions – PLEASE READ THEM CAREFULLY
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The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented; marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
Submissions without this cover page will NOT be accepted.
Assignment Questions: (Marks- 10)
Q.1. In a report dated December 15, 2004, the Office of Economic Analysis of the U.S.
Securities and Exchange Commission (SEC) compared trade execution quality on the
NYSE and NASDAQ using a matched sample of 113 pairs of firms. The comparison is
based on six months of data from January to June 2004. The results regarding which
market has the better execution quality (NYSE or NASDAQ) vary across order size, firm
size, and order type. The results below are for small market orders (100–499 shares) in
shares of large market capitalization firms.
(2 Marks)
Spread (cents)
Quoted spread
Effective spread
NASDAQ
2.737
2.650
NYSE
2.791
2.490
On the basis of the above results, address the following:
A. Determine whether dealers in NASDAQ shares and dealers (‘‘specialists’’) in
NYSE shares in the particular market being discussed provided price
improvements.
B. B. Contrast the relative performance of dealers in the two markets with regard to
any price improvements.
Q.2. Consider some stocks that trade in two markets, with a trader being able to trade in
these stocks in either market. Suppose that the two markets are identical in all respects
except that bid–ask spreads are lower and depths (the number of shares being offered at
the bid and ask prices) are greater in one of the two markets. State in which market
liquidity-motivated and information-motivated traders would prefer to transact. Justify
your answer.
(2 Marks)
Q.3. Evaluate the most likely effects of the following events on the investor’s investment
objectives, constraints, and financial plan.
(3 Marks)
A. A childless working married couple in their late 20s adopts an infant for
whom they hope to provide a college education.
B. An individual decides to buy a house in one year. He estimates that he will
need $102,000 at that time for the down payment and closing costs on the
house. The portfolio from which those costs will be paid has a current value of
$100,000 and no additions to it are anticipated.
C. A foundation with a €150,000,000 portfolio invested 60 percent in equities, 25
percent in long-term bonds, and 15 percent in absolute return strategies has
approved a grant totaling €15,000,000 for the construction of a radio telescope
observatory. The foundation anticipates a new contribution from a director in
the amount of €1,000,000 toward the funding of the grant.
Q.4. Duane Rogers, as chief investment officer (CIO) for the Summit PLC definedbenefit pension scheme, has developed an economic forecast for presentation to the
plan’s board of trustees. Rogers projects that U.K. inflation will be substantially higher
over the next three years than the board’s current forecast. (3 Marks)
Rogers recommends that the board immediately take the following actions based on his
forecast:
A. Revise the pension scheme’s investment policy statement to account for a change
in the U.K. inflation forecast.
B. Reallocate pension assets from domestic (U.K.) to international equities because
he also expects inflation in the U.K. to be higher than in other countries.
C. Initiate a program to protect the pension scheme’s financial strength from the
effects of U.K. inflation by indexing benefits paid by the scheme.
State whether each recommended action is correct or incorrect. Justify each of your
responses with one reason.