代写QBA25622 Finance Disciplin
QBA25622 ASSIGNMENT PROJECT
Finance Discipline Group, UTS Business School.
Spring 2016
Subject Coordinator: Dr Vitali Alexeev
 
This assignment has several parts of unequal value. Some parts are technical, and are designed to help you understand the connections between the material in mathematics chapters covered in the first part of the semesterwith the help ofa financial application. Econometrics part is applied and designed to help you develop practical econometric skills (e.g., understanding of regression analysis, interpretation of regression results).  You will apply regression analysis as done by finance professionals using real world data with applications to financial market and survey data.
 
·         You must type your answers in the spaces provided. Make use of MS Office Equation environment (i.e., in Ribbon: InsertàEquation, see examples within this document).
 
·         You must include this cover sheet. This assignment can be done in groups of up to six(6) students. Your group members do not need to be part of the same tutorial group, but you must nominate the tutor for the majority of your group members in the space below.


·         No names may be added to the group lists apart from the names that appear below at hand-in.


·         Submit only one assignment for each group. DO NOT hand in a separate assignment for each group member.


·         Late assignments will incur a penalty of 5% for each day past the due date up to 5 days. Assignments submitted 5 days after the due date will receive zero mark.
 
The assignment submission boxes are located on Level 5, Building 8 (Chau Chak Wing Building) in the Business Faculty.The assignment boxes are used by many subjectsso it is important to identify your assignment CLEARLY with your names and SIDs. Submit your assignment to FINANCE 2 box. Assignments submitted to boxes other than FINANCE 2 will not be picked up, and as a result, will not be graded. It is your responsibility to ensure that you submit your assignment to the correct assignment box.  Do not remove this assignment cover. The onus is in you to submit your assignment to the correct subject box by the due date. The deadline to submit your assignment is5:00pm Friday7 October.
 
 

Name	Student Number

 
Tutor’s Name:  
 
Tutorial Day and Time:
 
Date stamp or tutor’s signature and date
 
Group Work Protocol
The following group work protocol is required to satisfy the by-laws on assessment tasks of the Faculty of Business at UTS.
Group work and group assignments are an important part of business education. The purpose of group work goes beyond the requirements of the group project itself. Group work is also intended to develop awareness of the dynamics of teamwork and your role in a team environment. In undertaking group work it is expected that each team member will communicate with other team members in a professional and courteous manner. Resolving any conflict or difficulties that arise within the team is also part of the group dynamics that may emerge during the project. It is expected that each team member will take responsibility for managing and reducing any conflict that may arise. If the team members are unable to resolve tensions or conflicts then this MUST be discussed face-to-face with the lecturer/tutor during the consultation hoursas soon as it becomes obvious that a resolution within the team cannot be agreed.
In the learning environment of group work we are seeking to ensure that you develop and demonstrate both academic skills and important group work skills such as:
 
·         Commitment to working with others (eg, undertaking a fair share of the work, sharing ideas, doing the tasks allocated, attending meetings)
 
·         Collaboration and inclusiveness (eg encouraging and supporting others, respecting others; recognising the skills and valuing the contribution of others, helping  resolve conflicts)
 
·         Contribution to establishing and working towards a common outcome (eg establishing and supporting team goals, plans, rules, roles, decisions)
 
 
 
 

Group Work Declaration Form
Individuals must sign a declaration form, otherwise the project report will not be marked. Complete only Part 1 or Part 2. Do not complete both. This sheet should be completed and handed in along with your group assignment.
 
Part 1
I believe that all members of the group have contributed fairly to this assignment, and each member should receive the same mark for the assignment.
 
Your name:.............................................................................Signature.........................................................
Group member names:         
      
 

Part 2

I believe that not all members of the group have contributed fairly to this assignment. I believe the proportion of the total workload that each has contributed is indicated below.
Your name..........................................................................Signature...........................................................
 
Group member names:                        Proportion of Workload:     
 
………………………                                  ……….….%                    
 
……………………….                                 …………..%                    
 
………………………                                  ……….….%                    
 
……………………….                                 …………..%      
 
……………………….                                 …………..%      
 
……………………….                                 …………..%      
 
                           
                                                 Total = 100%
 
Please note that if you have signed Part 2 you must attach a statement explaining:
·         Why you believe a group member/group members have not contributed their fair share to the project
·         A breakdown of  tasks you and others have completed in the project
·         An estimate of the time you think each of those tasks has taken.
·         Any other positive or negative contributions made by you and others
This information will be shown to other group members so that they have an opportunity to respond.
 
While each group member’s comments will be taken into consideration, the final decision on how the marks are awarded will remain the right of the course coordinator.
 
 

Question A(10 marks) -Credit Card Mathematics

 
Introduction
 
On a monthly credit card balance of $1000, a typical credit card company will only ask for a minimum payment of $20.  Why do credit card companies do that? 
 
Mathematics of Credit Card Debt
 
Suppose we do what the company wants and make only the minimum payment  every month against an initial balance of  .  If the company charges monthly interest rate , what is the balance after  months?
 
See if we can notice a pattern.
 

Balance after  months

 
 
A1. (2 marks) Looking at the pattern above, derive a general function, , for the balance after  months. Hint: use summation notation where applicable when deriving the function.
 
 
 
 
A2. (1 mark) If your credit card company charges a monthly interest rate of 2% (annually 24%) on an initial balance of $1000, and you make a monthly payment of $30, what is your balance after one year? That is, find the value of .
 
 

 
A3. (1 marks) Based on your answer in A2, how much did you end up paying in interest rate charges over a year?
 
 
 
 
A4. (2 marks) Use geometric progression properties to convert the general formula in A1 above to a functional form that excludes the summation notation.Hint: You want to replace the summation notation  with a ratio;see https://en.wikipedia.org/wiki/Geometric_progression, subsection titled Related Formulas.
 
 
 
A5. (2 marks) How many months would it take to pay off a balance of $1000 if you made $30 monthly payments while being charged 2% monthly interest?What if we double the payment to $60, do we cut the time in half?Hint: equate the function for the balance after  month to zero and solve for .
 
 
 
 
 
A6. (2 marks) Plot the function derived in A5 in a two-dimensionalcoordinate system with  on the -axis and  on the -axis. Assume the initial balance of, and monthly interest of . Find the vertical asymptote of this function, that is, find the value  (monthly minimum payment on your credit card) such that the number of months required to pay off your credit card debt is equals to infinity (that is a monthly minimum payment that makes you forever indebted to your credit card provider!).
 
 
 
 

 

Question B(10 marks) - Stock Markets

 
Introduction
 
TheCapital asset pricing model (CAPM) takes into account the stock's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by  in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset. CAPM shows that the cost of equity capital is determined only by beta. Despite it was invented in the 1960s, the CAPM still remains popular due to its simplicity and applicability in a variety of situations.It may be a good idea to check out Understanding Beta athttp://www.investopedia.com/video/play/understanding-beta/ .
 
The CAPM is a model for pricing an individual security or portfolio. The risk of a portfolio comprises systematic risk, also known as undiversifiable risk, and unsystematic risk which is also known as idiosyncratic risk or diversifiable risk. Systematic risk refers to the risk common to all securities—i.e. market risk. Unsystematic risk is the risk associated with individual assets. Unsystematic risk can be diversified away to smaller levels by including a greater number of assets in the portfolio (specific risks "average out"). The same is not possible for systematic risk within one market. Depending on the market, a portfolio of approximately 20securities would be sufficiently diversified.
 代写QBA25622 Finance Disciplin
The beta from a single factor model in the form
 

 
is a good approximation to the CAPM beta.
 
The basic idea is that stocks tend to move together, driven by the same economic forces (the market). Here, the dependent variable, are percentage returns for stock , and independent variable, are percentage returns for a broad market index.
 
 is the intercept and  is the slope of the linear relationship between the stock returns and the market.  are the residual returns that cannot be explained by the market fluctuation (this is your idiosyncratic or firm-specific fluctuations).
 
 
In Lecture 6 (file ASX200.xlsx), you were provided with the prices for 165 stocks as well as the S&P/ASX 200 Index (a benchmark for the Australian stock market) from January 1, 2013 to December 30, 2015.
 

1. Pick any 3 securities (full name, industry and sector information is provided in Stock Information tab in ASX200.xlsx file).

 

2. Convert your chosen security prices and the market index into percentage returns.For each asset/index, percentage returns are defined as . This will define your returns for the three stocks,, and the market return.

 
 
 
 
B1. (3 marks) Perform OLS regression for each stock separately and report regression outputsfor the three models from Excel/Matlab including line fit plots and residual plots.
 
 
 
B2. (3 mark) For each stock, discuss the OLS assumptions and violations (if any) based on the results fromB1.
 
 
B3. (1 mark) Discuss the estimated betasfor your three stocks and their statistical significance. Are these betas in line with your expectations? Provide your reasoning.What does it mean if a stock has a beta equal to 1? What does it mean if a stock has a beta equal to zero?
 
 
 
B4. (1 mark) Discuss the measure of fit () of your regressions in B1. Are these  in line with your expectations? Provide your reasoning. Note that    gives the fraction of the variance of the dependent variable (the return on a stock/portfolio of stocks) that is explained by movements in the independent variable (the return on the market index).
 
 
B5. (2 marks) Construct an equally weighted portfolio consisting of your three chosen stocks (equally weighted portfolio returns are simply the average of individual stock returns in that portfolio, ) and find the portfolio beta. Report regression output (including line fit plots and residual plots), assess the OLS assumptions and violations (if any) and discuss the estimated portfolio beta and the measure of fit of your regression. How does the measure of fit for the portfolio compares with the measures of fit for your individual stocks? Comment on portfolio diversification effect using your s.
 
 

 

Question C(10 marks) -Population Survey

 
Introduction
 
Each month the Bureau of Labor Statistics in the U.S. Department of Labor conducts the “Current Population Survey” (CPS), which provides data on labor force characteristics of the population, including the level of employment, unemployment, and earnings.  Approximately 65,000 randomly selected U.S. households are surveyed each month.  The sample is chosen by randomly selecting addresses from a database comprised of addresses from the most recent decennial census augmented with data on new housing units constructed after the last census.  The exact random sampling scheme is rather complicated (first small geographical areas are randomly selected, then housing units within these areas randomly selected).
 
The file cps08.xlsx contains the data for 2008 (from the March 2009 survey).  These data are for full-time workers, defined as workers employed more than 35 hours per week for at least 48 weeks in the previous year.  Data are provided for workers whose highest educational achievement is (1) a high school diploma, and (2) a bachelor’s degree.
 
Series in Data Set:
FEMALE:     1 if female; 0 if male
YEAR:          Year
AHE      :      Average Hourly Earnings
BACHELOR:      1 if worker has a bachelor’s degree; 0 if worker has a high school degree
 
 
Use the data in cps08.xlsx to answer thefollowing questions:
 
 
C1. (2 mark) Run a regression of average hourly earnings (AHE) on age (Age).Report Excel/Matlab output. What is the estimated intercept? What is the estimated slope?
 
 
C2. (2 mark) Run a regression of AHE on Age, gender (Female), and education(Bachelor). Report Excel/Matlab output. What is the estimated effect of Age on earnings? Constructa 95% confidence interval for the coefficient on Age in the regression.
 
 
C3.(1 mark) Are the results from the regression in C2 substantively different fromthe results in C1 regarding the effects of Age and AHE? Does theregression in C1 seem to suffer from omitted variable bias?
 
 
C4.(2 mark) Bob is a 26-year-old male worker with a high school diploma. PredictBob's earnings using the estimated regression in C2. Alexis is a30-year-old female worker with a college degree. Predict Alexis'searnings using the regression.
 代写QBA25622 Finance Disciplin