Financial Management:- Virtual Trader Assignment

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General assumptions of the assignment:
• Virtual money has been invested in virtual shares on the FTSE100 through virtualtrader.co.uk. This is split across two investment portfolios, Portfolio 1 (£100,000) and Portfolio 2 (£100,000).
• The assumption is that the writer is acting as an asset management firm investing this virtual money on behalf of a third-party investor.
• The assignment should therefore be written in the style of a report, looking retrospectively at the individual investments that have been made in each portfolio.
• The report should critically analyse why investments have been made and why they have likely returned money (or not). If the investments have made a loss, a discussion as to why they have likely made a loss is perfectly reasonable.
• For portfolio 1, the investments and analysis are not based upon any theoretical framework for investment but instead events that may have affected the share value. A fictitious example would be:
Investing shares in Sky because of news prior to the investment which suggested their sales were up/predicted to rise or a competitor in the same industry had left the market etc. Another example would be to say that economic factors such as Brexit had affected oil prices as oil is purchased in USD and the GBP/USD rate has fallen subsequently affecting airline industries such as EasyJet plc who are dependent on oil – meaning that this is perhaps why their share value has fallen.
• With regards to the investments within portfolio 2, the critical analysis is based around explaining the capital asset pricing model (CAPM) and how the asset management firm used this model prior to investing to achieve a beneficial result for the investor.
The asset management firm must calculate the beta values of the specific shares they have invested in portfolio 2, as well as their CAPM (%) and variance. From this, the report should explain what these figures mean and how this was likely to affect the return. Another fictitious example would be:
“The asset management firm invested £XXX in XXX plc because the beta coefficient was below 1 meaning that the share is less volatile when reacting to the market, and so is of lower risk. As a result, investing a large amount of money means the firm expected less of a return over time but at less of a risk for the investor. If however we observe how XXX plc’s shares reacted to the market we can see that in fact their share value was volatile, suggesting that the CAPM is not always a proven method of success”
Other examples for topics for discussion include investing in a share for short term/long term reward, investing in a diverse portfolio (investments across numerous different industries) for decreased level of risk for the investor, again relating specifically to the investments made.
The report should also consider factors such as how the share value has changed over time, buying stocks and shares at certain points during share fluctuations, and other academic literature. The report should also discuss limitations of the CAPM and academic literature surrounding the CAPM and conclude by summarising the findings of investments in each portfolio.

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