Introduction to Finance

1. Prepare a brief description of Apple Inc and The Coca-Cola Company using the latest Annual Reports. The description should include: main areas of business activities, main products/services, and principal geographies.

PART II – Financial Performance (400 words)

2. Using the companies’ financial statements, carry out a full financial statement analysis using a variety of financial ratios, including liquidity measures (acid test ratio; cash ratio), long-term solvency measures (total debt ratio; interest coverage ratio), turnover measures (inventory turnover; asset turnover), and profitability measures (net profit margin; return on equity) in the analysis. Present the ratios in bar-charts depicting the change of the ratios over the past five years.

3. Comment on the performance of both companies over the past five years using your findings, outlining changes in the companies’ fortunes and change drivers.

PART III – Market Performance (450 words)

4. Using relevant literature, explain the importance of financial markets and the driving forces of share prices in the stock market.

5. Download the daily historical price data for Apple Inc., The Coca-Cola Company and the S&P500. The data should include 5 years of daily stock prices from 14th October 2015 until 13th October 2020.

6. Compute the average daily return, standard deviation, skewness and kurtosis for each share and the market.

7. Create a density plot of the daily returns. The returns distribution should range between -3.50% and +3.50%, and the bin width should be 0.5%.

8. Plot the average annual returns and standard deviations in the return-volatility space.

9. Using the plots and summary statistics, write a full comment on the risk-return profiles of Apple Inc, The Coca-Cola Company, and the market index.

Note: Format your answers to keep three digits after the decimal point.

PART IV – Portfolio of Shares (500 words)

Consider the following portfolio: Apple Inc; The Coca-Cola Company.

10. Compute the correlation matrix for Apple Inc, The Coca-Cola Company and the S&P500. Explain the importance of the correlation information.

11. Compute the portfolio return and variance with weights combinations varrying from 0% in Apple Inc – 100% in The Coca-Cola Company to 100% in Apple Inc – 0% in The Coca-Cola, increasing Apple Inc.’s weight by 10% each time.

12. Plot the returns and variances of the portfolio combinations.

13. Explain the efficient frontier and highlight it on the return-variance plot.

14. Using the Excel Solver, find the weights of the two assets for the minimum variance portfolio (MVP) and report the return and variance of the MVP. Add the MVP to the plot.

15. Explain the limits of diversification, referring to the types of risks and their sources, with examples. Support your argument with references to relevance literature.

Note: Format both axes numbers as percentages with two digits after the decimal point.

Formatting and Presentation

Please closely follow the following guidelines:

· All work should be word processed in 12-point font Times New Roman or Arial, double spaced and justified.

· All plots axes’ numbers should be presented as percentages. All graphs and tables should be labelled.

· The report should include a brief introduction and conclusion.

· All sections are numbered with appropriate headings.

Marking Criteria

The following criteria will be used in evaluating this assessment. achieve a high score, the criteria below should be satisfied.

PART I – 10 marks

· The company description is concise and accurate.

PART II – 25 marks

· A full description of the financial statements sources, the formulae used for ratio analysis

· The analysis of the financial performance includes a clear interpretation of each ratio.

PART III – 25 marks

· A full description of the data source, the formulae used for return and standard deviation calculations are included.

· The analysis of the scatter plot includes a clear discussion of the return-risk trade off.

· The analysis of the density plot is based on all four metrics.

PART IV – 30 marks

· The discussion of the efficient frontier refers to relevant academic literature. Wikipedia and Investopedia do not qualify as academic literature.

· The limitations of diversifications are discussed based on relevant academic literature.

· The report includes the criteria used in the Excel Solver with justification.

Presentation – 10 marks

· The report follows the guidelines aforementioned.

· The language used is academic and not include any contractions such as “They’re, isn’t…” and the like.

Formative feedback and support during the module

Formative feedback provides opportunities to reflect on your ongoing work and preparation for your assignment. Complete this section to highlight formative feedback opportunities specific to this assignment and embedded in this module.

Further information about this assessment is available on the Blackboard site for this module and includes:

Formatting

Please use the following file formats:

· .docx (Word) format for the main report,

· .xlsx (Excel) format for the Excel workbook.

We cannot ensure that other formats are compatible with markers’ software and cannot guarantee to mark incorrect formats.

All work should be word processed in 12-point font Times New Roman or Arial and single spaced.

The first page of your coursework must include:

· Your student number

· The module name and number

· Your word count

Word Limit

The maximum word limit for this coursework is 1,500 words.