Description
Choose one of the following questions. Both questions have equal marks.
Question 1 Your clients are a 40-year-old married couple. They have two children; one is 10 the other is 14 years old. They have savings of £80,000. Their combined earnings are £110,000 p.a. They have a mortgage outstanding with 10 years remaining. Their mortgage payments total £21,600 each year. Within the coming year they are going to receive an inheritance of £400,000.
(a) What are the life events that this married couple might need to financially plan for?
(b) What do you think the risk tolerance of this married couple is? Explain your answer.
(c) How much of the clients’ total wealth (including their income, savings and inheritance) would you recommend that the clients use to invest? Explain your choice.
(d) You now need to construct a portfolio for this couple. You have the choice of the following financial instruments to include in your portfolio. Choose no more than six of the following financial instruments to include in your portfolio.
For each of the financial instruments that you have chosen to include in this couple’s portfolio consider the following questions:
(i) What are the main characteristics of each of the financial instruments you have chosen?
(ii) Why do you think they are suitable investments for your clients? Do they have any disadvantages?
(iii) What proportion of the total amount of money that these clients have available to invest will you allocate to each of the financial instruments? Explain your answer.
(iv) What portfolio style do you think would be most appropriate for your clients?
Question 2 You can find all of the information you need in the Financial Times which can be accessed via the library by clicking the link to Ft.com on the page https://libguides.exeter.ac.uk/az.php?a=f. Once you have logged on you can use the search function on this page (https://markets.ft.com/data/equities) to find each company. You may need to connect to the library via VPN. Using the information in Table 1 (below), choose five equities to discuss. For each company you choose, answer the following questions:
(a) Find current market price for each share you have chosen and compare the current price with the prices listed in the table from October 2019.
(b) All of the companies in Table 1 have been affected to some extent by Covid-19. Their share prices initially fell when Covid-19 first emerged. The price of some of these shares have recovered and are now higher than they were before. Others have recovered and are now approximately the same as they were before Covid-19, while the price of others have remained much lower. Explain how and why share price of each company has changed. You should consider the global, national and industry drivers of demand for each company and how these may have been affected by the consequences of Covid-19.
(c) Find or calculate the trailing P/E ratio for each of the firms you have chosen. What does P/E ratio tell us about each company?
(d) Find the equity beta of each of the companies you have chosen. If you were to have equal investments in each of the five equities in a portfolio, and no other assets, what would the portfolio’s beta be?
