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This is an assessed piece of work that will account for 30% of the total marks available for this course. This is a team assignment with marks allocated equally to each member of any given group.

Each group is to hand in one word-processed solution not exceeding 2,500 words plus numerical appendices. It is a requirement that a CD is included that contains the underlying data and that shows all major calculations. A word count must be placed on the front cover of the document; 2 marks (from the 30 available) will be deducted if there is no word count and 5 marks will be deducted if the examiner feels that there has been a deliberate attempt to give misleading information about the length of the assignment.

**Submission**

The submission deadline is April 19, 2018. Coursework must be submitted by 14:00 pm on the submission deadline. One copy must be submitted via Turnitin UK on Learning Central and one hardcopy must be submitted to the PG Hub. If you do not submit both copies then a mark of zero will be given. Note that late submissions will also be given a mark of zero.

**Dealing with problems within the group**

If there are any problems within a working group, then students should write a brief email (no more than 150 words) to Khelifa Mazouz (mazouzk@cardiff.ac.uk) by the 30 th March at the latest. At the discretion of the module leader, the group may be called together to discuss these problems at a later date. If problems persist in the final days of the assignment, then students should submit a formal statement in writing. **If this process reveals that there is a group member who has provided insufficient positive contribution to the assignment, then the right is reserved to give that student a mark below that of their group.**

We also strongly recommend that you minute group meetings and make notes of who contributed what to the assignment.

**QUESTION**

Select any 10 stocks from the FTSE 100 Constituent List (Data is available on the Learning

Central).

- Use the cut-off rate (C*) approach to construct the optimal portfolios for the period from 01/01/2011 to 31/12/2012. You are required to calculate the percentage invested in each stock (X i ), the expected return () and the standard deviation ( of the optimal portfolio under each of the following scenarios:
a. Risk-free lending and borrowing is allowed, but short-selling is not allowed. (10 marks)

b. Risk-free lending and borrowing as well as short sales (standard definition) are allowed. (5 marks)

c. Risk-free lending and borrowing as well as short sales (Lintner’s definition) are allowed. (5 marks)

- Use the single-index model to assess the performance of each of the three optimal portfolios in part (1) over the period from 01/01/2013 to 31/12/2013. Discuss your results.

(10 marks)

- Assume that at least one of the three optimal portfolios in (2) generates a significantly positive abnormal return. Can this finding be used as evidence against market efficiency? Support your answer with the relevant theoretical and empirical literature.

(25 marks)

- Use the single-index model to estimate the Betas for each of the 10 stocks in your sample for the periods from 01/01/2010 to 31/12/2010 and from 01/01/2011 to 31/12/2011.

(15 marks)

- Use Blume’s (1975) technique to predict the stock Betas for the period from 01/01/2012 to 31/12/2013.

(10 marks)

- Compare the Betas generate from Blume’s technique (part 6.) with those obtained from the single-index model for the period from 01/01/2012 to 31/12/2013. Discuss your results.

(20 marks)

(Total 100 marks)

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