FIN7D4 Assignment Brief 2 What am I required to do in this assignment? As a junior analyst working at an asset management company, you are asked to support the team who is building a global...

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FIN7D4 Assignment Brief 2 What am I required to do in this assignment? As a junior analyst working at an asset management company, you are asked to support the team who is building a global fixed-income portfolio for an investor new to fixed-income investments. You are required to create a mini fixed-income portfolio, make the required analysis and prepare a report on your analysis, as part of the final pitch. Your portfolio should include (each bond in 1 million nominal of the chosen currency): - one plain vanilla fixed coupon government bond with at least 2 years left to maturity (preferably denominated in USD): Bond A - one plain vanilla fixed coupon corporate or sovereign bond with at least 2 years left to maturity (denominated in the same currency as Bond A): Bond B - one plain vanilla fixed coupon corporate or sovereign bond with at least 2 years left to maturity, denominated in a different currency than Bond A and Bond B: Bond C - one fixed-income security with a different coupon payment structure of your choice (denominated in the same currency as Bond A): Bond D. 1. Choose the appropriate bonds (in Reuters Eikon) in line with today’s market conditions. Explain the bond characteristics for each bond, which are critical for an investor. Attach the screenshot of each bond’s description to supplement your explanation. Describe all the risks for each bond investment, including the impact of interest rate changes on bond returns. 2. Calculate the modified duration of Bond B and cross-check it with the modified duration provided in Reuters. Provide the Excel sheet of your calculation with formulas. Explain to the investor what the purpose of modified duration is and how it differs from DVBP. What would be your recommended trade, if the client considers hedging the interest rate risk? Explain your recommendation with the necessary calculations and provide the screenshots of the Reuters screens you use. 3. Explain the concept of the IRR of a bond portfolio. Calculate the portfolio IRR for Bonds A, B and D. Use Excel for your calculation. Describe your calculation method and provide the Excel sheet of your calculation with formulas. 4. Explain to the client why she should consider an FX hedge for Bond C. Calculate the FX hedge for this bond by using the appropriate spot and forward rates in Reuters. Show your detailed calculation and provide the screenshot of the screens you use. 5. What would be your recommended trade, if the client considers hedging the credit risk of Bond B? Explain what credit risk is and what constitutes an event of default in terms of CDS trading. Also, explain how CDS mechanism works, and what the cashflows will be when there is no default, and when there is a default, for Bond B’s CDS hedge. 6. Explain to the client what an asset swap is and how it changes the bond’s risk profile. What is the asset swap spread of Bond B, what does it represent and if the client wants to get into an asset swap, what will be the initial exchange between the client and the broker? Support your explanation with Reuters screenshots. You must produce all the spread sheets, graphs and Reuters screenshots in your report. Is there a size limit? 2,500 words plus or minus 10%. What do I need to do to pass? You must demonstrate the ability to meet learning outcomes, Answer most the questions above correctly You should show evidence that you have clear capacity to develop and analyse a fixed-income investment portfolio and apply it in real market conditions You must show evidence that you can apply investment theories and financial assets models in practice using real data You must demonstrate an ability to critically analyse financial data Demonstrate ability to understand market conditions Ability to draw investment recommendations based on conducted analysis. Show clear evidence of deep understanding, analytical skills and engagement independent learning. How do I produce high quality work that merits a 70% or above grade? You should follow closely the below mentioned requirements: 70%+ means: Overall excellent report, all aspects of brief addressed in full, insightful analysis and reflection throughout. Logical and insightful recommendations included which logically follow from the main body of the report. The report above 70% address all the requirement points addressed above. - Excellent ability to apply investment models using real financial data - Clear recommendations - Effective reflection - Ability to use simulation and pricing techniques - Show clear distinctive innovation.