Accounting Question

Please read my assignment requirements carefully, I need your assurance that you will be able to complete this assignment.

Word count requirements
The word count for this assignment is 1,500 words.
You must state on the front of your assignment the number of words used and this will
be checked.
The main text for this assignment must be word-processed in Arial, font 12, double
spacing, minimum 2cm margins all around.
You must observe the word count specified in this assignment brief. The School has a
policy of accepting variations to the recommended word count of plus or minus 5%.
What does this mean for you?
Markers will mark your work up to the word count maximum plus 5% and then will stop
marking; therefore all words which are in excess of the word count plus 5% will not be
marked.
Where your word count is more than 5% below that specified, it is likely that this will
result in a lack of analytical depth or relevant content, which will be reflected in the mark
assigned.
What is in the word count?
The word count includes:
– the main text, including in-text reference citations and quotations.
The word count does not include:
– Appendices. These may be used to include supporting data, which may be too
detailed or complex to include as a Table. They are not a device to incorporate
material, which would otherwise cause you to exceed the word limit.
– Title page
– Contents page
– Abstract/executive summary
– Tables, figures, legends
– Reference lists
– Acknowledgements
Page 2 of 6
Assignment:
For this assessment, you are tasked with applying your knowledge, skills and expertise
to analyse financial data and provide statistically informed insights and
recommendations to a client. The assessment is split into TWO parts: Part 1 concerns
returns on different index funds, whilst Part 2 considers the (possible) linear
relationship(s) between stock returns and various economic factors.
Your final solution should be in the form of a 1,500 word response to questions below.
Mathematical formulae do not count towards your word limit. Within your solution, you
should include a response to ALL of the questions provided below. To ensure a
thorough solution, you should include details of any model assumptions, limitations and
considerations used within your analysis.
Part 1 (Analysis of returns):
Your client is interested in the returns from different index funds. In particular, the FTSE
100 index, the S&P 500 index and a weighted portfolio comprising 30% in FTSE 100
and 70% in S&P 500 indices.
Below you will find summary statistics for the daily log-returns for these three options
(FTSE 100, S&P 500 and weighted portfolio) over the last 10 years:
Note: St. Dev represents standard deviation. This data is based on 2470 observations
between 1st January 2014- 31st December 2023 (247 trading days per year).
The client would like you to conduct an analysis on these funds and provide a report of
your findings. The client has provided a list of specific tasks and questions for you to
include in your analysis:
1) For each of the funds above (FTSE, S&P and Portfolio), calculate the daily
Sharpe ratios assuming a risk free rate of 3% per annum over the same 10 year
period.
[4 marks]
2) Using the summary statistics provided in the table above and your answer to part
1), provide a general summary of the THREE different funds and give your
expert recommendation on which would be the best investment for the future.
[8 marks]
3) It is assumed that the daily log-returns of the FTSE 100 are independent and
identically normally distributed with parameters and . Using the sample dataμ σ2
above, determine point estimates for the unknown population parameters andμ
Page 3 of 6
.σ2
[3 marks]
4) Using your result from part 3), estimate the 5% quantile for future returns of the
FTSE 100. Comment on your results, including what this value represents in
terms of returns.
[5 marks]
5) It is believed that the population mean of daily log-returns for the FTSE 100 is
greater than . Using your result from part 3) and the table above, test0. 00005
this hypothesis with a 5% significance level.
[5 marks]
6) Using the summary statistics above and any other results you think relevant,
comment on the assumption of normally distributed daily log returns for these
funds. Is this a valid assumption based on the sample data?
[5 marks]
7) Conduct the Jarque-Bera test for normality on the different funds to support your
answer to part 6).
[5 marks]
Part 2 (Regression Modelling):
The annual returns on a stock depend on various economic and non-economic factors.
The client believes that one of the most important factors for stock returns is the value
of the company’s ‘Net Assets’ (NA, in billions of pounds) and that this is linearly related
with the annual returns. That is
,𝑅𝑖 = β1 + β2𝑋𝑖 + 𝑢𝑖
where and represent the annual returns and net assets (NA) of company ,𝑅𝑖 𝑋𝑖 𝑖
respectively, and are unknown parameters and are normallyβ1 β2 𝑢𝑖 ∼ 𝑁(0, σ2)
distributed errors.
The above regression model has been fitted to the 22/23 annual returns of the 100
companies that make up the FTSE 100 index as a random sample for ALL stocks and
the results are given in the output below:
Page 4 of 6
Word count requirements
The word count for this assignment is 1,500 words.
You must state on the front of your assignment the number of words used and this will
be checked.
The main text for this assignment must be word-processed in Arial, font 12, double
spacing, minimum 2cm margins all around.
You must observe the word count specified in this assignment brief. The School has a
policy of accepting variations to the recommended word count of plus or minus 5%.
What does this mean for you?
Markers will mark your work up to the word count maximum plus 5% and then will stop
marking; therefore all words which are in excess of the word count plus 5% will not be
marked.
Where your word count is more than 5% below that specified, it is likely that this will
result in a lack of analytical depth or relevant content, which will be reflected in the mark
assigned.
What is in the word count?
The word count includes:
– the main text, including in-text reference citations and quotations.
The word count does not include:
– Appendices. These may be used to include supporting data, which may be too
detailed or complex to include as a Table. They are not a device to incorporate
material, which would otherwise cause you to exceed the word limit.
– Title page
– Contents page
– Abstract/executive summary
– Tables, figures, legends
– Reference lists
– Acknowledgements
Page 2 of 6
Assignment:
For this assessment, you are tasked with applying your knowledge, skills and expertise
to analyse financial data and provide statistically informed insights and
recommendations to a client. The assessment is split into TWO parts: Part 1 concerns
returns on different index funds, whilst Part 2 considers the (possible) linear
relationship(s) between stock returns and various economic factors.
Your final solution should be in the form of a 1,500 word response to questions below.
Mathematical formulae do not count towards your word limit. Within your solution, you
should include a response to ALL of the questions provided below. To ensure a
thorough solution, you should include details of any model assumptions, limitations and
considerations used within your analysis.
Part 1 (Analysis of returns):
Your client is interested in the returns from different index funds. In particular, the FTSE
100 index, the S&P 500 index and a weighted portfolio comprising 30% in FTSE 100
and 70% in S&P 500 indices.
Below you will find summary statistics for the daily log-returns for these three options
(FTSE 100, S&P 500 and weighted portfolio) over the last 10 years:
Note: St. Dev represents standard deviation. This data is based on 2470 observations
between 1st January 2014- 31st December 2023 (247 trading days per year).
The client would like you to conduct an analysis on these funds and provide a report of
your findings. The client has provided a list of specific tasks and questions for you to
include in your analysis:
1) For each of the funds above (FTSE, S&P and Portfolio), calculate the daily
Sharpe ratios assuming a risk free rate of 3% per annum over the same 10 year
period.
[4 marks]
2) Using the summary statistics provided in the table above and your answer to part
1), provide a general summary of the THREE different funds and give your
expert recommendation on which would be the best investment for the future.
[8 marks]
3) It is assumed that the daily log-returns of the FTSE 100 are independent and
identically normally distributed with parameters and . Using the sample dataμ σ2
above, determine point estimates for the unknown population parameters andμ
Page 3 of 6
.σ2
[3 marks]
4) Using your result from part 3), estimate the 5% quantile for future returns of the
FTSE 100. Comment on your results, including what this value represents in
terms of returns.
[5 marks]
5) It is believed that the population mean of daily log-returns for the FTSE 100 is
greater than . Using your result from part 3) and the table above, test0. 00005
this hypothesis with a 5% significance level.
[5 marks]
6) Using the summary statistics above and any other results you think relevant,
comment on the assumption of normally distributed daily log returns for these
funds. Is this a valid assumption based on the sample data?
[5 marks]
7) Conduct the Jarque-Bera test for normality on the different funds to support your
answer to part 6).
[5 marks]
Part 2 (Regression Modelling):
The annual returns on a stock depend on various economic and non-economic factors.
The client believes that one of the most important factors for stock returns is the value
of the company’s ‘Net Assets’ (NA, in billions of pounds) and that this is linearly related
with the annual returns. That is
,𝑅𝑖 = β1 + β2𝑋𝑖 + 𝑢𝑖
where and represent the annual returns and net assets (NA) of company ,𝑅𝑖 𝑋𝑖 𝑖
respectively, and are unknown parameters and are normallyβ1 β2 𝑢𝑖 ∼ 𝑁(0, σ2)
distributed errors.
The above regression model has been fitted to the 22/23 annual returns of the 100
companies that make up the FTSE 100 index as a random sample for ALL stocks and
the results are given in the output below:
Page 4 of 6