Financial Markets and Investments
Assume that you are working as a financial analyst in a financial consulting firm. Your company mainly offers support to individual investors who invest their money in the capital market. For simplicity, assume that all the investments are made in financial assets listed and traded mainly on the London Stock Exchange. You are requested to offer specialist investment advice to a client who has a total of £100,000 cash to invest. As a financial analyst you are required to prepare a report making suggestions as to the selection of appropriate financial assets to buy with the £100,000. In preparing your report with detailed suggestions to the client you should note the following requirements apply:
1. You have to invest a total of £100,000 or any fractional amount as close to £100,000 as possible (considering the indivisibility of investment in some cases).
2. You have to form a portfolio rather than investing money in one single financial asset.
3. The minimum number of financial assets that you should include in the portfolio is five and the maximum is ten financial assets.
4. You have to make an assessment of the risk attitude of your client at the beginning of your report and set out an appropriate investment strategy to follow.
5. You may include a risk-free security in the portfolio. The proportion of investment in risk-free assets should be determined by you and based on your assessment of the risk attitude of your client.
6. You have to include common stock in the portfolio. However, the proportion of investment in stock should be determined by you based on your assessment of the risk attitude of your client.
7. You may assume that short selling is allowed.
8. Your target is to maximise return and minimise risk. However, the combination of risk and return should follow be based upon your assessment of the client’s risk attitude.
9. You must write the report in a professional manner.
10. You need to compare the performance of your portfolio with the return of a selected index (FTSE 100) for a period of the past 12 months to justify the selection and construction of your portfolio.
11. You must provide relevant explanations concerning the selection of each asset and also provide appropriate explanations concerning the construction of the portfolio. You must show appropriate calculations of asset values and returns of individual assets and the portfolio, along with risk calculations to justify your decision in constructing the portfolio and the inclusion of any assets in the portfolio.
12. Any argument you provide in your explanations must be supported by appropriate literature.
Solution
Executive Summary
The report aims at practically assessing the use of financial management concepts in the selection of securities to invest in the London Stock Exchange. The financial analyst’s objective here is to make good an investment for a particular investor who provides 100,000 pounds for investment. This report provides a detailed description of the various securities in the London stock exchange, the determination of potential return, and the investment strategy used in the asset selection that will be incorporated in the portfolio. There is also the strength/performance of the portfolio and comparison or measurement of the performance of the portfolio to the market index to evaluate the…..
Introduction
Financial management concepts of investments are used in the selection, evaluation, and acquisition of securities that constitute a portfolio. The concept of financial management is consistent with the financial management principles of diversification and maximization of shareholders’ wealth. Investors create portfolios with different securities that have varying rates of return, therefore, reducing risk and pooling returns. This is due to the various natures of the assets, a kind of cautionary investment approach to cushioning against the market pressures as the securities are mutually exclusive. The main concepts of portfolio theory and capital asset pricing model (CAPM) are considered for the assessment of any investment option, therefore, helping investors to choose the best portfolio in their view that makes the highest return. Portfolio theory elaborates the selection of different securities, their respective weights and the expected return of each asset combined within a specific portfolio……………………………………please follow the link below to purchase the solution at $15