Assignment - QFFM Written Coursework

Learning Outcomes

On successful completion of this assignment you will be able to:

1. Apply quantitative tools in financial markets

2. Critically evaluate the impact of changes to financial models

3. Compute basic valuation analysis for financial markets instruments

4. Evaluation of the inputs variables and their outputs in the use of quantitative tools in financial markets

5. Critically evaluate the relative importance of the key elements in successful performance measurement and control

Your Task

QUESTION 1

Students are debating among themselves about the relative performance of male and female students at the faculty of economics and  business. Sarah Smith believes that female students outperform male students in economics courses. In order to prove her point, she collected data on students’ results in economics courses in the last year.

Sarah collected economics course results for 160 male and 272 female students. Male students had an average score of 83 and standard deviation of 5 and female students had an average score of 84 and standard deviation of 7.

a. Conduct a hypothesis test and determine if Sarah is right in her claim that on average female students performed better in economics courses compared to men. Use a significance level of 0.1.

b. Describe any additional assumptions required to validate the results of the hypothesis test in part a.

QUESTION 2

During the recession that began in 2008, not only did some people stop making house payments, but they also stopped making payments for local government services such as trash collection and water and sewer services. The following data have been collected by an accountant who is performing an audit of account balances for a major city billing department.

The population from which the data were collected represents those accounts for which the customer had indicated the balance was incorrect. The dependent variable, y, is the actual account balance as verified by the accountant. The independent variable, x, is the computer-generated account balance.

a. Compute the least squares regression equation.

b. If the computer-generated account balance was 100, what would you expect to be the actual account balance as verified by the
accountant?

c. The computer-generated balance for Oliver Buxton is listed as 100 in the computer-generated account record. Calculate a 95% interval
estimate for Mr. Buxton’s actual account balance.

d. Calculate the P-value of the regression and interpret it. Given the sample of the data, what is the chance that a relationship between
the actual and computer-generated account balance doesn’t exist?

QUESTION 3

A real estate investor in Santa Monica, California wishes to determine the selling price in California of residences using the size (square feet), and whether the residence is a condominium or a single-family home. A sample of 20 residences was obtained with the following results:

a. Produce a regression equation to predict the selling price for residences using a model of the following form:

b. What effect would an increase of the square footage by 100 square feet have on the expected price? And what is the effect on the price if the property on the market is a single-family home?

c. Calculate P-values and a 95% confidence interval for both slopes. What is the probability that the observed effect of the property
being a condominium and of the square footage really influence the price?

d. Produce an equation that describes the relationship between the selling price and the square footage of (1) condominiums and (2)
single-family homes. 

QUESTION 4

A major sausage producer has an office in Wolfsburg, Germany. The sales manager of the office is evaluated based on the number of new clients signed up every quarter. The following data reflect the number of new customers added during each quarter between 2015 and 2018:

a. Calculate the multiple linear regression equation using quarterly data as dummy variables.

b. Interpret each slope and the intercept in the multiple linear regression equation from part a. Calculate a 95% and 99% confidence interval for each variable slope and assess whether it is statistically significant.

c. Create a forecast for 2019 and 2020.

QUESTION 5

James Anderson is the COO of a leading financial institution. He has asked you, the portfolio manager, to calculate the best combination of asset stock, bonds, and commodities in the firm’s portfolio. James has also provided you with the following information from the firm’s financial history.

Given the information above, you are required to produce a report that consists of the following:

a. Expected returns and their standard deviations from all possible expected portfolio combinations using 10% as the smallest unit of combination, for example the first combination will be Stock 100%, Bonds 0%, and Commodities 0%, second combination Stock 90%,Bonds 10%, Commodities 0% and so on.

b. Plot the efficient frontier for all combinations.

QUESTION 6

In this question, you are required to identify data with two or more variables of your choice and to calculate regression between them. On top of this exercise, you are required to write an essay about what regression is, its purpose and its shortcomings, and how the identified link translates into causal connection.