Offering Advice on Financial Theory and Investment Options

Advice on Financial Theory and Investment Options
Advice on Financial Theory and Investment Options

Previously you provided advice to a client who had little knowledge of finance. As a result of your advice on financial theory and investment options, the client has again contacted you to provide further advice on additional aspects of finance, though this time at a much higher level of financial literacy. Again it will be your responsibility to provide the mathematical calculations for the investment(s) they provide and the theoretical questions they pose.


Your client, for whom you are writing the report, is a data scientist by profession. His knowledge of financial theory and financial mathematics is now at an intermediate level after some transitional study. His financial position has not changed in that he wishes to retire in 10 years, and is in a position to invest into sound investments for both short-term and long-term returns. He has done some research and has found a number of investments that he wishes to have analysed. As such, you do not have to search for viable investments for him.

He has also explicitly communicated that the report should identify and detail the viability of the securities and that he is not expecting you to identify any additional investments.

While we can garner a degree of information as to your client’s financial position, you do not know his financial position. In the same manner as the previous report you presented to him, it is impossible to know how many of these investments he can purchase / invest. Therefore you are expected to provide advice on each investment in isolation from the other investments, i.e. not as a portfolio of investments.


The report should contain the following information:

·    Introduction (100 words)

Comprising a discussion on the purpose and context of the report.

·    Discussion / Workings

Consisting of a discussion regarding your client’s financial questions and full workings

regarding your client’s investment suggestions.

·    Conclusion (100 words)

Summarising the discussion and possible investments and providing guidance and recommendations to the queries provided by your client.

·    References

The presentation of the report should be using a report style (see the link within the Assessment section of the BANK 2007 learnonline website) which follows the formatting requirements stated on the first page of the assignment (above).

Client’s Financial Questions:

·    What is the Capital Asset Pricing Model (CAPM) and how is it used to evaluate whether the expected return on an asset is sufficient to compensate the investor for the inherent risk of the asset?

·    What is an efficient capital market and why market efficiency is important to financial managers?

·    Identify the assumptions that are necessary to make the general dividend valuation model easier to use, and, in doing so, to be able to use the model to calculate the value of a company’s ordinary shares.

·    Explain net present value (NPV) as a capital budgeting tool and how NPV is used for the evaluation of a capital project.

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