Critically appraise the basis of risk/return characteristics of bonds and ability to calculate and interpret measures of risk and return.




Equity and Fixed Income Securities (Main)






September 2023


15th December 2023 at 12.00PM


15th January 2024





Learning Outcomes: 

1. Critically appraise the basis of risk/return characteristics of bonds and ability to calculate    

    and interpret measures of risk and return.

2. Critically evaluate the characteristics, inherent risks and behaviour of equities and bonds.

3. Critically assess the main valuation models applied to equity and fixed income securities

    and be able to interpret them with real world data.

4. Explore the ethical issues in the equities and bonds markets. 


1.Download and examine the series of daily stock prices and returns of any two companies listed under different industries on the London stock exchange for the period of one year before COVID 19 was officially declared as pandemic by the World Health Organization (11th March 2020) and one year after. Stock returns should be downloaded directly from Refinitiv Datastream or computed from the downloaded stock prices using the formula , where  is natural log,  is the current price and  is the original price.

Your examination should be about pre and post COVID 19 computing the following, including economic explanation of the parameters/answers for investors’ use.

i. Annual HPR and HPY

ii. Geometric mean of the annual HPR and the HPY

iii. Risk of the stock returns using variance and standard deviation measures

iv. Coefficient of variation (CV) of the stock returns. Use geometric mean to calculate your expected returns (20 marks)

2.Using the same data in Question 1 above, estimate and briefly explain the slope of the security market line (SML) using capital asset pricing model (CAPM) of the two stocks pre and post COVID 19. Use both real and nominal risk-free rate in the UK in your computation (you may use Fisher effect formula in the computation). (20 marks)                                                                                                                                

3.Identify and briefly explain the fundamental (unsystematic) risks including any ethical issues of the two companies selected. (10marks)                                                                                                            

4.Compute the current price (share value) of the two companies selected above for pre and post Brexit referendum date using constant-growth dividend discount model (DDM). You may use capital asset pricing model to estimate your cost of equity and 4 years (n=4) prior final annual dividend declared by the companies to estimate the constant growth. You are allowed to make reasonable assumptions. Explain any limitations with your computations.(10 marks)

 5. Write brief notes on the following, supporting your points with an existing literature:         

i.Comparison between debentures, unsecured loans and convertible bonds in the United Kingdom bond market with real examples of at least two of each.

ii.Using the data available for any UK Corporate bonds Hargreaves Lansdown (, calculate the implied Yield to Maturity (YTM) and duration of two bonds issued by two different corporate issuers. Identify which bond is more risk in terms of characteristics as well as the quantitative measure of duration. (40 marks)                      

                                                                    Total = 100 marks (to be weighted to 70%)

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