B9BA106 TMD2
QQI
Master of Science in Business Analytics
SUMMER 2021 EXAMINATIONS
Module Code:
B9BA106
Module Description:
Financial and Business Analytics
Examiner:
Richard O’Callaghan
Internal Moderator:
Paul Lydon
External Examiner:
Date: 26th May 2021
Time: 9:30
INSTRUCTIONS TO CANDIDATES
Time allowed is 2 hours
Answer question 1 and 2 are compulsory. Answer any 2 questions from the remaining 3
Question 1 carries 30 marks; Question 2 carries 20 marks. Other Questions carry 25 marks
Show ALL workings
Formulae and Mathematical Tables Attached
Page 1 of 7
B9BA106 TMD2
Section A – Compulsory
Question 1
You have recently been appointed as a portfolio manager for Candle Investments LLC. Your firm
specialises in structuring investment portfolios for the National Treasury Management Agency (NTMA).
You have been asked to evaluate the following portfolios.
Details of the Portfolios:
i. The first NTMA portfolio is a three-asset portfolio that combines investments in Publications with
investments in Entertainment and Financial Services. Details of the investments and their individual
expected cash flows over a one-year horizon have already been developed as follows:
Sector
Publications
Entertainment
Financial Services
Investment
€1,200,000
€2,540,000
€2,855,000
One Year Cash Flow
€320,000
€401,000
€310,000
Following its initial review of the portfolio, the NTMA has indicated that it is considering adding an
office block that it just purchased into the proposed 3-asset portfolio (thereby creating a 4-assets
portfolio). The office block was acquired for €2,320,000 and has been assessed as currently providing
a return of 8.5%.
Required:
a. Calculate the individual one-year returns on each asset where this is not provided.
(3 marks)
b. Calculate the expected return on the portfolio.
(5 marks)
c. Explain and critically evaluate the concept of diversification.
(2 marks)
ii. Evaluate the risk of the following 2 asset portfolio:
Value
Scenario
Best Case
Worst Case
Most Likely
Asset A
€12,000,000
Probability
Return
0.3
22%
0.2
11%
0.5
13%
Asset B
€19,000,000
Probability
Return
0.2
14%
0.2
-2%
0.6
12%
Required:
a. Explain and critically evaluate the term “Risk” when it is applied to investment returns.
(4 marks)
b. Calculate the Variance and Standard Deviation of each of Asset A and Asset B.
(8 marks)
c. Calculate the portfolios Standard Deviation if its correlation has been calculated to be 0.78.
(8 marks)
(Total 30 Marks)
Page 2 of 7
B9BA106 TMD2
Question 2
i.
Critically evaluate the use of “Real Options”. Your answer must include an evaluation of at
least the 4 typical options considered.
(10 marks)
ii.
Define each of the following terms and provide one example of a business or financial
analytics use for each:
a.
b.
c.
Moving Average
Weighted Moving Average
Seasonal Variation
(4 marks)
(3 marks)
(3 marks)
(Total 20 marks)
Page 3 of 7
B9BA106 TMD2
Answer any 2 of the following 3 questions
Question 3
i. You are a trainee Fixed Income Analyst working for PPA Financial. You have been asked to provide an
investment recommendation for each of the following Corporate Bonds:
Bond Name
Time to
Redemption
(Years)
Par / Face
Value of one
Bond
Coupon Payment
5
4
3
€1,500
€900
€750
€83 (S)
€63 (S)
€58 (Q)
Volcanic LLC
Sicily H1
AMBIENT P-Type
Q = Quarterly
S = Semi-Annual
Market Value one
Bond
Required
Annual Rate
of Return*
€922
€1,120
€1,131
9%
13%
16%
*You have different required returns depending on the period of the bond.
Required:
a. Calculate the coupon rate for each bond
(6 marks)
b. Should you invest in this bond? (Give a reason for your answer)
(11 marks)
ii.
Explain the term “Dark Pool” and briefly outline 2 benefits and 2 criticisms of Dark Pools.
(8 marks)
(Total 25 marks)
Question 4
You are instructed by your supervisor to evaluate the level of diversification in a portfolio containing the
shares of Paste PLC and Creative PLC based on the changing daily returns for both companies for last
week.
Day
Monday
Tuesday
Wednesday
Thursday
Friday
Paste PLC
8.00%
9.50%
9.80%
9.10%
9.00%
Creative PLC
12.00%
12.00%
14.00%
13.00%
12.00%
Required:
i. Calculate the covariance between the two assets.
(12 marks)
ii. Calculate the correlation between the two assets.
(12 marks)
iii. Comment on the level of diversification of the portfolio.
(1 marks)
(Total 25 Marks)
Page 4 of 7
B9BA106 TMD2
Question 5
i. Based on the theories of technical analysis covered, explain and interpret the following market trading
chart. Your answer should include an explanation of the indicator(s) used in this chart and any trading
signal(s) observable at “A” and “B”.
a. TSLA 50- and 200-day moving Average
A
B
(11 marks)
ii. The table below contains data on the market movements in the shares of Fran PP Plc (in €) for the
period 25th March 2021 to 29th March 2021. Draw candlestick chart for the data provided:
Date
25th March 2021
26th March 2021
27th March 2021
28th March 2021
29th March 2021
Open
750
783
811
792
772
Low
730
719
750
718
738
High
815
818
831
819
808
Close
770
794
770
750
800
(12 marks)
iii. Other than a Candlestick chart, name two other types of chart a Technical Analyst might use in her
work.
(2 marks)
(Total 25 Marks)
END OF EXAMINATION
Page 5 of 7
B9BA106 TMD2
Mathematical Tables and Formulae
Period
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
1%
0.990
0.980
0.971
0.961
0.951
0.942
0.933
0.923
0.914
0.905
0.896
0.887
0.879
0.870
0.861
2%
0.980
0.961
0.942
0.924
0.906
0.888
0.871
0.853
0.837
0.820
0.804
0.788
0.773
0.758
0.743
3%
0.971
0.943
0.915
0.888
0.863
0.837
0.813
0.789
0.766
0.744
0.722
0.701
0.681
0.661
0.642
4%
0.962
0.925
0.889
0.855
0.822
0.790
0.760
0.731
0.703
0.676
0.650
0.625
0.601
0.577
0.555
5%
0.952
0.907
0.864
0.823
0.784
0.746
0.711
0.677
0.645
0.614
0.585
0.557
0.530
0.505
0.481
6%
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.527
0.497
0.469
0.442
0.417
7%
0.935
0.873
0.816
0.763
0.713
0.666
0.623
0.582
0.544
0.508
0.475
0.444
0.415
0.388
0.362
8%
0.926
0.857
0.794
0.735
0.681
0.630
0.583
0.540
0.500
0.463
0.429
0.397
0.368
0.340
0.315
9%
0.917
0.842
0.772
0.708
0.650
0.596
0.547
0.502
0.460
0.422
0.388
0.356
0.326
0.299
0.275
10%
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
0.350
0.319
0.290
0.263
0.239
Period
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
11%
0.901
0.812
0.731
0.659
0.593
0.535
0.482
0.434
0.391
0.352
0.317
0.286
0.258
0.232
0.209
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
0.287
0.257
0.229
0.205
0.183
13%
0.885
0.783
0.693
0.613
0.543
0.480
0.425
0.376
0.333
0.295
0.261
0.231
0.204
0.181
0.160
14%
0.877
0.769
0.675
0.592
0.519
0.456
0.400
0.351
0.308
0.270
0.237
0.208
0.182
0.160
0.140
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
0.215
0.187
0.163
0.141
0.123
16%
0.862
0.743
0.641
0.552
0.476
0.410
0.354
0.305
0.263
0.227
0.195
0.168
0.145
0.125
0.108
17%
0.855
0.731
0.624
0.534
0.456
0.390
0.333
0.285
0.243
0.208
0.178
0.152
0.130
0.111
0.095
18%
0.847
0.718
0.609
0.516
0.437
0.370
0.314
0.266
0.225
0.191
0.162
0.137
0.116
0.099
0.084
19%
0.840
0.706
0.593
0.499
0.419
0.352
0.296
0.249
0.209
0.176
0.148
0.124
0.104
0.088
0.074
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
0.135
0.112
0.093
0.078
0.065
Period
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
21%
0.826
0.683
0.565
0.467
0.386
0.319
0.263
0.218
0.180
0.149
0.123
0.102
0.084
0.069
0.057
22%
0.820
0.672
0.551
0.451
0.370
0.303
0.249
0.204
0.167
0.137
0.112
0.092
0.075
0.062
0.051
23%
0.813
0.661
0.537
0.437
0.355
0.289
0.235
0.191
0.155
0.126
0.103
0.083
0.068
0.055
0.045
24%
0.807
0.650
0.525
0.423
0.341
0.275
0.222
0.179
0.144
0.116
0.094
0.076
0.061
0.049
0.040
25%
0.800
0.640
0.512
0.410
0.328
0.262
0.210
0.168
0.134
0.107
0.086
0.069
0.055
0.044
0.035
26%
0.794
0.630
0.500
0.397
0.315
0.250
0.198
0.157
0.125
0.099
0.079
0.063
0.050
0.039
0.031
27%
0.787
0.620
0.488
0.384
0.303
0.238
0.188
0.148
0.116
0.092
0.072
0.057
0.045
0.035
0.028
28%
0.781
0.610
0.477
0.373
0.291
0.227
0.178
0.139
0.108
0.085
0.066
0.052
0.040
0.032
0.025
29%
0.775
0.601
0.466
0.361
0.280
0.217
0.168
0.130
0.101
0.078
0.061
0.047
0.037
0.028
0.022
30%
0.769
0.592
0.455
0.350
0.269
0.207
0.159
0.123
0.094
0.073
0.056
0.043
0.033
0.025
0.020
Period
1
2
3
4
5
6
7
8
9
10
35%
0.741
0.549
0.406
0.301
0.223
0.165
0.122
0.091
0.067
0.050
40%
0.714
0.510
0.364
0.260
0.186
0.133
0.095
0.068
0.048
0.035
45%
0.690
0.476
0.328
0.226
0.156
0.108
0.074
0.051
0.035
0.024
50%
0.667
0.444
0.296
0.198
0.132
0.088
0.059
0.039
0.026
0.017
60%
0.625
0.391
0.244
0.153
0.095
0.060
0.037
0.023
0.015
0.009
70%
0.588
0.346
0.204
0.120
0.070
0.041
0.024
0.014
0.008
0.005
80%
0.556
0.309
0.171
0.095
0.053
0.029
0.016
0.009
0.005
0.003
90%
0.526
0.277
0.146
0.077
0.040
0.021
0.011
0.006
0.003
0.002
1
B9BA106 TMD2
Expected Return – Single Asset
Expected Return – Multi-Asset
Portfolio Risk (Variance)
E(r) = p1r1 + p2r2 + p3r3 + ... + pnrn E(r) = w1r1 + w2r2 + w3r3 + … + wnrn 𝝈𝟐 = ∑ 𝑷𝒏 (𝑹𝒏 − 𝑬(𝑹))𝟐
 Weighting of asset in portfolio
 Standard deviation
Pn Probably of occurrence
Rn Return in n occurrences
Covariance
Correlation
𝝈𝟐 = ∑ 𝑷𝒏 (𝑹𝒏 − 𝑬(𝑹))𝟐
𝝆=
E(R) Expected Return
rf Risk Free Rate of Return
Ra = rf +  (rm – rf)
rm Return of the Market
 Beta of an Asset
√𝝎𝟐𝑨 𝝈𝟐𝑨 + 𝝎𝟐𝑩 𝝈𝟐𝑩 + 𝟐𝝎𝑨 𝝎𝑩  𝝈𝑨 𝝈𝑩
 Correlation
Capital Asset Pricing Model
𝑪𝑶𝑽(𝒙, 𝒚)
𝝈𝒙 𝝈𝒚
Std Dev 2 asset portfolio
Internal Rate of Return
𝒓𝒂 +
𝑵𝑷𝑽𝒂
∗ (𝒓𝒃 − 𝒓𝒂 )
𝑵𝑷𝑽𝒂 − 𝑵𝑷𝑽𝒃
NPV Net Present Value
Dividend Valuation (growth)
Cost of Equity
WACC
P0 = Do(1+g) / (Ke -g)
Ke = DV0 x (1+g) + g
PV0
Ko = Ke x E + Kd x (1-t) x D V0 = DV1 + P1
E+D
E+D
(1+Ke) (1+Ke)
P0 Price in year 0
P1 Price in year 1
Ke Cost of equity
g Growth
DV0 Dividend Income
Kd Cost of debt
Present Value
Cost of Irredeemable Debt
𝑭𝑽
𝑷𝑽 =
(𝟏 + 𝒓)𝒏
Kd = Annual interest (1-t) x 100
Market value of debt
PV Present Value
FV Future Value
1
Dividend Valuation (one Period)
E Market value of equity
D Market value of debt
t Tax rate