Financial Securities Analysis

Module Title:
Financial
Securities Analysis

Coursework 1

Part 1
You have taken a management position in Ocean
Cuisines plc that just went public last year. The company’s restaurants
specialize in seafood dishes. A concern you had was that the restaurant
business is risky.
During your interview process, one of the
benefits you heard was employee stock option. Upon signing your employment
contract, you obtained options with a strike price of £65 for 10,000 shares of
company stock. As is fairly common, your
stock options have a three-year vesting period and a 10-year expiration,
meaning that you cannot exercise the options for a period of three years and
you lose them if you leave before they vest. So, your employee stock options
are European for the first three years and American afterward. You cannot sell
the option nor can you enter into any sort of hedging. Ocean Cuisines is
currently trading at £40 per share, a slight increase from the initial offering
price last year. You estimated that the annual average standard deviation for
restaurant company stock is 20 percent. Since Ocean Cuisines is a new
restaurant chain you decide to use a 25percent standard deviation in your
calculations. You expect no dividends will be paid for the next 10 years. A
three-year Treasury note currently has a yield of 3.4% and 10-year Treasury
note has an yield of 6%.

1. Suppose that in
three years, company’s stock is trading at £55. At that time, should you keep
the options or exercise immediately? What are some of the important
determinants in making such a decision? 30marks
2. You are trying to
value your option. What minimum value would you assign? What is the maximum
value you would assign? 10
marks
Total word count of part 1 – 500 words

Part 2

Managers regularly buy derivatives on currencies, interest rates and
commodities to limit down side risk. In this context discuss the pros and cons
of hedging airline fuel costs by the airline companies.

45 marks
Total word count of part 2 – 1250 words

Part 3

Select a unique public limited company and
examine whether its share is overpriced, under-priced or fairly priced and
recommend to BUY HOLD or SELL. Application of Capital Asset Pricing Model is
required in this section.

15 marks
Total word count of part 3 – 250 words

Total word count: 2,000
(+/-10%)
Note: Guidance notes
are given in the appendix below

Appendix
Attaining a Pass
Grade
Assessments
The coursework must be your work and in your words. Avoid plagiarism
and copying from a colleague. When utilising books and journal articles make
sure that you reference the authors correctly. Failure to do this will be
penalised. A copy of a guide to using the Harvard referencing system is available
on GCU Learn.

Quality
The questions will
be graded with reference to certain criteria, which include:
• an ability to show
an understanding of the question
• an ability to use
the correct theoretical and applied material
• an ability to make
linkages with other topics covered in the module i.e. not answering the
question in isolation
• utilising your
research into a logical and coherent answer

Therefore, an answer that receives a distinction would show an
appreciation and understanding of a wide array of literature and use it in an
applied manner. It would cover all aspects of the question in a coherent and
logical way and have no significant mistakes. A merit would show the above
characteristics but would fail to answer all aspects of the question, have some
minor mistakes and would fail to utilise as broad a literature base. To gain
either of these grades, students should show more than blind regurgitation,
utilising the relevant theories presented in the literature to give a clear
precise answer.
A pass at this level will show an understanding of the question, but
will have omissions and some errors. It will not use or apply the theories as
thoroughly but it will still show that the student can utilise the relevant
material to answer the question.
A fail will show a misunderstanding of the concepts presented in the
module and fail to answer the question with the relevant theories from the
literature. You are advised to work on structuring their essays before handing
in any work – devise plans and highlight the relevant sections in any
literature they read. Badly structured and poorly written answers will be
penalised.
Presentation
The way in which the
Coursework are presented is important. The format must be:-
• Paper A4
white, typed on one side only (paper copy)
• Text should be double spaced except for footnotes, appendices
and indented quotations which should be single spaced
• Margins are
25 mm
• Page numbering
small roman (i, ii …) for preliminary pages, arabic (1,2 …) for main text
and appendages (at the bottom middle of the pages)
• Font —
Times New Roman 12pt
• Justification —
Full
• You are required to advise of the total number of pages (for
the whole document) when you are handing it in and the total word count
(excluding appendices) These will be included in your declaration that this is
your own work etc.
• All references to
be made using the Harvard system
• Failure to
submit a copy through Turnitin will count as an automatic fail

Referencing
Use Harvard style referencing

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