FINC 616 Investment Management

Semester 1, 2024

FINAL REPORT

(Due Date: 4:00 pm on Thursday, May 30, 2024)

INSTRUCTIONS:

●    This is an individual assessment.

●    This  is  an  Analystical  Report  examining  strategies for equity and fixed-income valuation, and investment  portfolio management.

●    To complete this report, you need to use TWO Case studies (see 3 Questions in Section A and 3 Questions in Section B) and ONE Portfolio simulation (see 3 Questions in Section C).

●    You are required to answer ALL questions of the THREE Sections above. These sections must be included in the Body section of your Main report.

●    The well structured report is required (please refer to Types of assessments athttps://ltl.lincoln.ac.nz/learning-and- research-skills/writing-and-referencing/types-of-assessments/, and look for Reports).

●     Please use the template of the report structure provided in the next page.

●     Marks allocated to each question are indicated.

●     Please do NOT share your answers to the questions with others.

●    The final report contributes to a maximum of 40% of the final grade.

●    Please present all final answers with two decimals for number (e.g. 1.23) and two decimals for percent (e.g. 1.23%).

●    FULL working must be presented (with formulas, working steps, and results) .

●    You are welcome to use a financial calculator and/or Excel to do some of the questions.

●    All tables, figures, and screenshots (if any) should be neatly presented with clear headings.

●    Please place All Tables and Figures used next to the corresponding discussions in the report.

●    Make sure that all final answers are clearly indicated and easy to identify for marking.

●     Do NOT copy the questions to your assignment.

●    There is NO requirement to submit a separate assessment coversheet.

●    An electronic copy of your assignment file (saved as a .pdf) is to be submitted to theSubmission Drop-Box for FINAL REPORTon the course LEARN page (the link opens on 23 May 2024). Your name and student ID must be provided on the front page.

●    Please refer to the Whakamārama Akomaka  | Course Information block on LEARN for further information aboutthe AgriCom Style. Guide.

Please note that:

●     Handwritten answers will not be marked.

●    Your report must not exceed 40 pages.

●    Every piece of work you hand in must meet the academic standards of Lincoln University. You should familiarise yourself with these, including the Academic Integrity Policy.

●    Citations and references should be done as perthe APA 7th  process.

Late Submission:

Unless alternative arrangements have been made with the Examiner, for assessment worth 10% or more of the final grade, MINIMUM penalties for lateness (based on calendar days) will be:

Less than 24 hours late (i.e., 1 day)	10% late penalty
Between 24 and 48 hours late (i.e., 2 days)	20% late penalty
Between 48 and 72 hours late (i.e., 3 days)	30% late penalty
Between 72 and 96 hours late (i.e., 4 days)	40% late penalty
Between 96 and 120 hours late (i.e., 5 days)	50% late penalty
Over 120 hours late (i.e., 5 days)	100% late penalty

Learning Outcomes (LO) covered:

LO1.    Demonstrate a comprehensive understanding of the theories and characteristics associated with securities valuation

and investment portfolio management.

LO2.    Compare and illustrate equity and fixed income valuation techniques for investment decisions.

LO3.    Perform equity and fixed income security valuations for investment.

LO4.    Apply the main methods of security analysis and portfolio management.

LO5.    Create an investment portfolio and evaluate its performance in the light of recent research on financial investments.

Template of the report structure: Please do NOT include the Blue words in your report Preliminary sections (4 marks)

- Title page

- Acknowledgment

- Abstract

- Table of Contents

- List of Tables (if any)

- List of Figures (if any)

- List of Appendices (if any)

Main report sections (4 marks for structure + 90 marks for contents)

1.    Introduction (5 marks)

2.    Investment Analysis and Management (Body section)

2.1.  Equity Valuation and Analysis

2.1.1. Instrinsic Value (8 marks)

2.1.2. Discussion on Valuation Approaches (8 marks)

2.1.3. Evaluation on the Equity Performance for Investment (9 marks)

2.2.  Fixed-income Valuation and Analysis

2.2.1. Credit Worthiness Analysis (8 marks)    2.2.2. Bond Valuation and Analysis (8 marks)

2.2.3. Evaluation on Bond Performance for Investment (9 marks)

2.3.  Evaluation of Portfolio Performance

2.3.1. Portfolio Construction (6 marks)

2.3.2. Portfolio Performance Analysis (8 marks)

2.3.3. Evaluation on Portfolio Performance (11 marks)

3.    Conclusion (5 marks)

4.    Recommendation (5 marks)

Supplementary sections (2 marks)

- Appendices (if any)

- References

Note:

- A maximum of 10 marks of this final report is allocated for a correct report structure :

o 4 marks for the Preliminary sections

o 4 marks for the Main report sections

o 2 marks for the Supplementary sections

- A maximum of 90 marks of this final report is allocated for the report contents:

o 5 marks for Introduction

o 75 marks for Investment Analysis and Management (25 marks for each sub-section)

o 5 marks for Conclusion

o 5 marks for Recommendation

- Students are required to write the Introduction, Conclusion, and Recommendation (Sections 1, 3, and 4 in the Main report sections) based on their answers in Section 2: Investment Analysis and Management (Body section).

SECTION A: EQUITY VALUATION AND ANALYSIS

LOs 1, 2, and 3 are assessed in Section A. This section requires students demonstrate a comprehensive understanding of the theories and characteristics associated with equity valuation; perform equity valuation for investment; and compare and illustrate equity valuation techniques for investment decisions. There are three     questions in this section. The total marks of this section is 25 marks.

QUESTIONS:

1.    Use the information from Box 1 on pages 4 and 5 of Equity Analysis and Valuation for The Walt Disney

Company (Disney) and assume the current year is 2019, calculate the intrinsic value of Disney stock using:

a.    Multi-Stage Growth Model                                                                                                            (5 marks)

b.    Market Multiples Approach                                                                                                           (5 marks)

2.    Based on the results calculated above:

a.    Reconcile Disney stock’s intrinsic value and identify whether the stock was undervalued or

overvalued.                                         (4 marks)

b.    Recommend the most suitable valuation approach by discussing the advantages and disadvantages of each valuation approach.                                                                                                          (6 marks)

3.    Based on the Bloomberg screenshots in Figures 1-2 on page 6, evaluate how the performance of Disney   stock changed relative to the S&P 500 market index over the period 01/08/2019 – 01/08/2021 to explain why or why not you would like to invest in the Disney stock.                                                               (5 marks)

Note: You can use more information from Yahoo Finance to support your analysis at https://finance.yahoo.com/quote/DIS/history?p=DIS.

(Show ALL workings if any)

Box 1. Equity Analysis and Valuation for The Walt Disney Company

Figure 1. Disney Stock (DIS US Equity) and S&P 500 Market Index (SPX Index) 01/08/2019 - 01/08/2021

Figure 2. Beta Statistics between Disney Stock and the S&P 500 Market Index 01/08/2019 - 01/08/2021

SECTION B: FIXED-INCOME VALUATION AND ANALYSIS

LOs 1, 3, and 4 are assessed in Section B. This section requires students demonstrate a comprehensive

understanding of the theories and characteristics associated with fixed-income valuation; perform fixed-income valuation for investment; and apply the main methods of security analysis for investment decisions. There are

three questions in this section. The total marks of this section is 25 marks. QUESTIONS:

4.    Use Table 1 on page 8, analyse the relative credit worthiness of Disney and its peers. Your discussions should cover the following:

a.    How to evaluate a company’scredit worthiness                                                                      (2 marks)

b.   Analyse the relative credit worthiness of Disney and its peers based on:

- Debt-to-Assets measure                                                                                                  (2 marks)

- Coverage Ratio measure                                                                                                  (2 marks)

- Debt-to-EBIDTA measure                                                                                                (2 marks)

5.    Consider a Disney bond that matures in 13 years, pays 7.0% coupon semi-annually, with a current price quote of 148.026%.

a.    Calculate the yield-to-maturity on the Disney bond using bond quote approach.           (4 marks)  b.    Based on the Bloomberg screenshot in Figure 3 on page 8, explain the difference between your result in Question 5a and the yield on the bond shown in Figure 3.                                    (4 marks)

6.    Use your analysis of the relative credit worthiness of Disney in Question 4, the information from Box 2 on   pages 9-12 of Fixed Income Analysis and Valuation for Disney, and data from Figure 4 on page 8 and Fitch Rating to answer the following:

a.    Present a Table and a Figure showing credit ratings of Disney and its peers (Charter, Comcast, Discovery, and Lions Gates) from 2019 to 2024. Data can be obtained at:

-  Disney:https://www.fitchratings.com/entity/the-walt-disney-company-96733568#ratings

-  Charter:https://www.fitchratings.com/entity/charter-communications-operating-llc-81199661#ratings

-  Comcast:https://www.fitchratings.com/entity/comcast-holdings-corporation-81722201#ratings

-  Discovery:https://www.fitchratings.com/entity/discovery-communications-llc-88232472#ratings

-  Lions Gates:https://www.fitchratings.com/entity/lions-gate-entertainment-corp-96006296#ratings

Note: See the information of bond rating athttps://corporatefinanceinstitute.com/resources/fixed-income/junk-bonds/ (5 marks)

b.   Justify differences and changes in credit ratings of Disney relative to its peers to explain why or why not you would like to invest in the Disney bond in Figure 4 on page 8. (4 marks)

(Show ALL workings if any)

Table 1. Debt Ratios of Disney and its peers

 

Figure 3. Disney Bond’s Yield and Spread Analysis (Settle Date 31 July 2019)

Figure 4. Disney Bond’s Yield and Spread Analysis (Settle Date 19 April 2023)

Box 2. Fixed Income Analysis and Valuation for The Walt Disney Company

SECTION C: EVALUATION OF PORTFOLIO PERFORMANCE

LOs 1, 4, and 5 are assessed in Section C. This section requires students demonstrate a comprehensive

understanding of the theories and characteristics associated with security valuation; apply the main methods of security analysis and portfolio management; and create an investment portfolio and evaluate its performance.

There are three questions in this section. The total marks of this section is 25 marks.

Portfolio simulation:

Source: The Portfolio simulation is adopted and modified based on the Virtual Stock Exchange (VSE) Sample Handout retrieved from https://www.marketwatch.com/document/vse-sample-classroom-handout.pdfon 18 March 2024.

Scenario:

Assume you area portfolio manager for FINC616 clients. Your clients entrust you with $1,000,000 to invest at your justification for a period of 8 weeks in April-May 2024.

Your clients expect that their money will be invested wisely and profitably. They expect high rate of return and their risk tolerance (RT) is considered relatively high.

At the end of the trading period, if your clients are satisfied with your performance managing their portfolio, they will extend their relationship with you.

Specifically, they are concerned about the following:

- Absolute return: The total dollar increase in the portfolio over the trading period.

- Risk-adjusted return: The return on the portfolio (Portfolio Performance) taking into account the level of risk based on the Daily US Treasury Bill (T-bills) Rates using the Treynor and Sharpe

Portfolio Performance Measures.

Market Watch Registration to Create your Portfolio on Virtual Stock Exchange Game:

To register your account, gotohttp://www.marketwatch.com/game/

Game link:https://www.marketwatch.com/games/2024finc616finalreport

Game name: 2024 FINC616 Final Report    Login/Password: FINC616_2024_Report     Registration is free. Enter the code above.

Portfolio Management Constraints:

- Each position you take in an asset must be a minimum of 5% of your assets and a maximum of 20% of your assets.

- Cash must NOT exceed 20% of your portfolio at anytime. We want you invested, not sitting on the sidelines.

Sources of Information for Portfolio Managers:

Sources that you may find to be particularly valuable for your research include:

- MarketWatch:http://www.marketwatch.com

- Wall Street Journal:http://www.wsj.com

- Yahoo Finance:http://www.finance.yahoo.com

-  Daily Treasury Yield Curve Rates:http://www.treasury.gov/resource-center/data-chart- center/interest-rates/Pages/TextView.aspx?data=yield