25721 Investment Management

Overview

Purpose:

Part I of the assignment is designed to mimic actual tasks of a portfolio/fund manager when investing in an equity portfolio.

Learning outcomes:

SLO1 Evaluate the roles played by risk and return in asset pricing models

SLO2 Construct and analyse investment portfolios

SLO3 Apply valuation techniques to equity and fixed-income securities

SLO4 Compute portfolio performance measures

SLO5 Explain links between the theory and the practice of investment management.

Type: Project

Groupwork: Individually assessed

Weighting: 15%

Format: This Assignment, including all text, tables and figures must be submitted in a WORD document with a minimum font size of 12. The Assignment, excluding the cover sheet and pages with graphs/diagrams, should not exceed 8 pages in length.

Due date: A softcopy of the Assignment and your EXCEL spreadsheet must be submitted online on Canvas by 11.59pm Friday 5th September 2025. Late submissions will not be accepted. Your Assignment will only be marked if you attach the cover sheet provided below to the front of your Assignment and write your student number, name and sign the cover sheet.

Task

This assessment task must be completed by you as an individual. You are required to complete three short answer questions. The first question requires a written answer on your thoughts on financial bubbles and meme stocks while questions two and three require the use of data for mean-variance optimisation calculations and written answers. The calculations can be done in EXCEL, but your answers must be pasted into WORD and formatted for submission. You must provide explanations and discussion of your work and answers.

Data Description - The data to be used in the Assignment is in the EXCEL worksheet titled AssignmentPartIData_2025Spring.xlsx. The worksheet contains monthly closing prices from January 2015 to January 2025 for stocks in six (6) listed companies, the ASX200 and the Reserve Bank of Australia's (RBA) cash rate target. Note: The cash rate is expressed as a percentage per annum (p.a.). The monthly cash rate can be estimated by dividing the annual rate by 12.

Download the following data set: Assignment Part I Data 2025 Spring.xlsx

EXCEL Calculations - You should complete the Topic 1 Exercises on EXCEL (Topic 1.xlsx )and go through the calculations in Topic 2 Weights Optimum Portfolio (Topic 2 Weights.xlsx ) before beginning work on the Assignment. This will give you a basic understanding how to use EXCEL to do calculations. To assist you doing some of your calculations you might like to go to EXCEL "Options" and include the "Add-ins", "Solver" and "Analysis Tool Pak".

Useful suggestions on writing an assignment can be found in The UTS Business School Writing Guide. UTS Business writing guide 2020 0.pdf

The APA (American Psychological Association) referencing style. (APAGuide 2022v2-1.pdf ) can be used for any referencing. Information on referencing is available from the UTS Library Referencing Support

Requirements

Question 1: Bubbles and Meme Stocks - 5 marks (3 marks for content and 2 marks for expression)

Meme stock frenzy has been blamed as one of the causes behind recent financial bubbles. Write a brief explanation in your own words what meme stocks are and whether regulations can be introduced that prevent them from creating financial bubbles. In your answer, you need to describe what type of regulations should be adopted.

Note: The only references that you can use to answer this question are: (i) Holden, R., (2025) Why it's so hard to spot a bubble, The Australian Financial Review, July 8. (ii) Druce, A., Koehn, E., and Powell, D., (2021) Revenge of the day traders: What's the GameStop craze all about? The Sydney Morning Herald, January 29. (iii) Knight, E., (2025) LoveBombing hits the market in revenge of the DORKS, The Sydney Morning Herald, July 28. (iv) Thomson, J, (2025) The "everything bubble' is back. But this time it's different, The Australian Financial Review, July 25. (v) Price, C., (2025) Sydney Sweeney sparks a $346 million Wall Street surge with new ad, The Sydney Morning Herald, July 25. (iiv) Material on Canvas and (v) the textbook Bodie, Z., Kane, A., and Marcus A.J, 2024, Essentials of Investments, 13th edition, McGraw-Hill Education. On page 80 there is an article on 'The GameStop Short Squeeze'

Question 2: Statistics - 5 marks (3 marks for content and 2 marks for expression)

The EXCEL Worksheet, Assignment Part I Data 2025 Spring.xlsx .contains the closing share prices for six companies listed on the Australian Securities Exchange (ASX).

1. For each of the six companies and the ASX200, estimate their monthly average continuous returns using the share price data in the EXCEL spreadsheet. In a labelled table, list the expected return and risk for each of the companies using these estimated returns. In another labelled table, list the correlation coefficients for each pair of companies.

2. Compare the profitability of each of the six companies and in your own words explain one feature of each of the companies that has had a major influence on its level of profitability.

3. Use your answers in 1. and 2. to select the two companies that you would invest in to create a two-asset portfolio. Explain in your own words why you decided to invest in these two companies.

Question 3: Investing in the Optimal Portfolio - 5 marks (3 marks for content and 2 marks for expression)

You inherit $625,00 from one of your relatives and decide to invest this money in the two companies that you selected in Question 2(iii). After completing a questionnaire, you are told that you have a risk aversion factor of 2.5.

1. Construct the optimum two-asset portfolio containing shares in the two companies you have selected to invest in. In a table list your estimates of this portfolio's expected return and risk and the weight and amount of money that you will be investing in each of the companies. Short-selling is allowed.

2. In your own words explain why the amount of money invested in each of the companies in your portfolio is the same or is different.

3. In a mean-standard deviation diagram draw an efficient frontier and utility curves to show where the optimal portfolio you constructed in 1. will lie. The diagram can be hand drawn.

4. You now decide to include a risk-free asset in your portfolio. Construct the optimum portfolio that is made up of the two risky companies that you selected and a risk-free asset. List your estimates of the optimum portfolio's expected return and risk and the weight and amount of money that you will be investing in each of the two companies and the risk-free asset.

5. In a mean-standard deviation diagram draw an efficient frontier, capital allocation line and utility curves to show where the optimal portfolio you constructed in 4. will lie. The diagram can be hand drawn.

6. Explain in your own words one strength and one weakness of constructing an optimal portfolio using the methods applied in (i) and (iv).

Note: Use the statistics calculated in Question 2 to estimate the weights, return and risk. Assume the average cash rate will be the return on the risk-free asset.