Financial Analysis Exercise #3 will build on exercise #2 and the sector/industry analysis. This exercise #3 is due by the end of Module 6. In this exercise, it will require selection of 3 firms with each sector/industry analyzed to invest $10,000,000 of a special portfolio into both stocks and bonds evenly. The objective of the portfolio is to produce superior returns to those of the S&P 500 over the next 12 months. Therefore, given the economic environment, the sector sensitivity and performance expected, 3 firms will need to be selected per industry that will outperform their sector. Requirements In order to meet all the requirements for the financial analysis exercise #3, you are required to complete the following tasks: Select stocks and bonds to purchase based on sector and industry analysis Use 3 methods to calculate relative value of stocks: dividend discount, Gordon model and P/E or other approved method. Obtain the consensus earnings forecast for the firms Explain how this will affect the expected future price Obtain a consensus interest rate forecast How will this effect bond prices? How will this affect the roll down the yield curve?

Background Financial Analysis Exercise #4 will build on exercise #2. This exercise #4 is due by the end of Module 8. In this exercise, you will develop different strategies to hedge and enhance your portfolio returns. In addition, you will select, value and analyze the different options and determine how they will perform in three different markets characterized by different volatility. Requirements In order to meet all the requirements for the financial analysis exercise #4, you are required to complete the following tasks: Develop a strategy to use options or futures to hedge the market value and enhance the profitability of the portfolio. Identify strategies that will work best in each of the following markets: o Flat market low volatility o Rising market moderate volatility o Rising/Falling market high volatility Value the selected options for the strategies with the CBOE calculator found in Module 8. Identify options that are in liquidity markets and describe the characteristics of the market and the brokers trade book. Identify the implied volatility of each option. Identify the Greeks for these options. How will the Greeks affect your decision to purchase these options in the different markets identified above? Additional Instructions The first step is to develop a strategies using options or futures. The hedge strategies could include, selling calls, buy puts, bull spreads, collars or whatever strategy you choose from those available. Explain the strategy and how it will work, for example selling calls. Explain what you hope to accomplish with the strategy and how it will work in the three different markets listed below. The strategy be developed for both stocks and bonds and with options or futures could be used. Discuss strategies that would work best in each of these different markets and explain why it would work. Next, discuss the option the value of the options in the market and those calculated with the CBOE calculator. Calculate the implied volatility of each option in your strategy. In particular, discuss the Greeks and how they help understand the changes in the options value as result of those 5 different factors. Discuss how volatility in particular would affect the value of the options/futures selected. Also, look discuss the open interest in the options/futures and whether that would affect your decision to trade that option. Discuss the effect of open interest and trading volume. Discuss the brokers trade execution book and what affect this could have on filling your option/future orders.