MS-E2114 Investment science

Home examination, to be returned by 29 May 2020 Salo & Olander

This home examination consists of three assignments which are each graded
on a scale from zero to ten points.

The answers must clearly describe how the data has been collected and ana-
lyzed to produce the results. You are also required to develop Excel models
which contain sufficient documentation (incl. definition of variables, mathe-
matical equations) and are to be returned together with written essay-style
answers to each question. The appropriate length of the written essay-style
answer to each assignment is about 2-3 pages (12 pt, 1 1/2 line spacing).

Please use the website https://markets.businessinsider.com/ to get da-

ta for these assignments. For stocks, explore the site
https://markets.businessinsider.com/stocks
to locate the stock which have been indicated and proceed by choosing
PRICE in the section GO IN-DEPTH ON to access data for the re-
levant time period in the section Historical Prices. Data on Bitcoin can be
downloaded from
https://markets.businessinsider.com/currencies/btc-usd
Data on bonds is available at
https://markets.businessinsider.com/bonds

1. Obtain information about three corporate bonds which have been is-
sued by Finnish firms such that these bonds have different maturities
and their yields are not are reported on the above site.

(a) List the key parameters of these three bonds and explain what
they mean.
(b) Determine the yields for these bonds.
(c) Assume that you are employed by a pension fund which is liable
to pay 1 000 000 EUR at the end of 2022. How should the pension
fund invest in the bonds you have identified to build a portfolio
which is immune to parallel shifts of interest rates?
(d) Reflect on what the risk of default implies for your answer to
question c). Should the pension fund invest in bonds issues by
sovereign states instead? If so, why and which ones?
MS-E2114 Investment science
Home examination, to be returned by 29 May 2020 Salo & Olander

2. Download market price data for selected stocks, convert the prices to
returns and solve tasks related to mean-variance portfolio theory. See
the detailed instructions in the Excel Sheet
MeanVariance.xlsx.
NOTE: The Excel sheet defines a structure that you have to follow.
You must fill in values or formulas in the orange cells, which may not be
moved nor deleted. Additionally, you should not edit the sheet names.
You may create additional sheets and define your own cells (if needed),
but the answers should regardless be reported in accordance to the
specifications.

3. Use the market price data for Bitcoin - USD to create a hypothe-
tical European option. See the detailed instructions in the Excel Sheet
BitcoinOption.xlsx.
NOTE: The Excel sheet defines a structure that you have to follow.
You must fill in values or formulas in the orange cells, which may not be
moved nor deleted. Additionally, you should not edit the sheet names.
You may create additional sheets and define your own cells (if needed),
but the answers should regardless be reported in accordance to the
specifications.

Excel Solver
Some of the tasks require the use of Excel Solver. We recommend that you
use the desktop version of Excel Solver, however, if this is not possible due
to OS limitations, you may use Aalto Office 365 Excel (via a web browser),
but this is strongly discouraged (because the solution quality is dubious).

To enable Excel Solver, follow the tutorial here:

https://www.solver.com/excel-solver-how-load-or-start-solver

Tutorial of desktop Excel Solver usage (recommended):

https://www.solver.com/solver-tutorial-using-solver

Web Excel Solver help (strongly discouraged):

https://www.solver.com/solver-app-help-and-support

All Excel files contain the sheet "Excel Environment", in which you must
specify your operating system and the verison of Excel that you have used
(due to possible differing results).
MS-E2114 Investment science
Home examination, to be returned by 29 May 2020 Salo & Olander

Submission
Submit your answers in MyCourses so that all files are prefixed with your stu-
dent number. For example, the file BitcoinOption.xlsx should be renamed
to XXXXXX-BitcoinOption.xlsx, where XXXXXX is your student number.

MyCourses submission:
https://mycourses.aalto.fi/mod/assign/view.php?id=573998

Deadline: 29 May 2020