Optionality in Defined Returns Plans?

| March 27, 2015

Paper, Order, or Assignment Requirements

 

We are in 2010. A large investment house is launching an aggressive campaign to encourage “long-term” stock investments among private UK investors. Using information from the quotes and catalogue sections below (herein pp.3-6), prepare a report (in no more than 2000 words) answering the following questions. Marks for the various parts of the report are indicated in parentheses.
1) Discuss the various risks involved if you’re an investor undertaking the 5 years defined returns plan. (15%)
2) Explain embedded (and type of) optionality, if any, for each of the 4 years and 6 years plans respectively. (20%)
3) Determine the value of the option embedded in the 4 years defined returns plan, discuss input parameters and explain overall approach (e.g. cite relevant literature, etc.). (45%)
4) If no costs are incurred by existing customers at contract origination, under what conditions will it be appropriate to sell their 4 years defined returns plan before maturity assuming a 9.8% penalty is deducted from their original investment? (20%)
Maximum word length excluding appendices containing spreadsheet results and calculations is 2000 words. The submission deadline is 25th March 2015 at 15.30. Although you can work in groups, the assignment will be marked on an individual basis (i.e. one report per person).
To be submitted to Flores Anderson (Room G.105, FWB management department). This coursework carries 25% of the assessed marks for this module.

Attached you can find:
– the coursework that has to be done with the questions and all the details
– the module contents

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