Financial Securities Analysis
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 an 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%.
- 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?
- You are trying to value your option. What minimum value would you assign? What is the maximum value you would assign?
Total word count of part 1 – 500 words
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.
Total word count of part 2 – 1250 words
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.
Total word count of part 3 – 250 words
Total word count for the whole : 2,000 (+/-10%)
Note: Guidance notes are given in the appendix below
Attaining a Pass Grade
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.
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.
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.
• Binding– Staples are acceptable if using a paper submission
• All references to be made using the Harvard system
• Failure to submit a copy through Turnitin will count as an automatic fail
The Harvard references system uses the name of the author, the date of publication and, following quoted material, the page references, as a key to the full bibliographic details set out in the list of References. e.g. ‘human decisions affecting the future . . . cannot depend on strict mathematical expectations since the basis for making such calculations does not exist’ (Keynes 1936: 162-3). Several authors have noted this trend (Smith 1970; Jones and Cook 1968; Dobbs et al. 1973). [N.B. et al. to be used when there are three or more authors].The date of publication cited must be the date of the source referred to; when using a republished book, a translation or a modern version of an older edition, however, the date of the original publication may also be given. Where there are two or more works by one author in the same year, these should be distinguished by using 1980a, 1980b, etc. The content and form of the reference list should conform to the examples below. Please note that page numbers are required for articles, both place of publication and publisher are required for books cited and, where relevant, translator and date of first publication should be included. Do not use et al. in the reference list: spell out each author’s full name or surname and initials.
Type of service-Academic paper writing
Type of assignmen-tEssay
Pages / words-8 / 2000
Language style-UK English