Question: Instructions on Assessment:
This assignment has two distinct parts:
Part A: 1000 words
1. With regard to Efficient Market Hypothesis test the FTSE 100 index. Your answer should cover the most recent 2 year period, and test for weak form efficiency using regression analysis and hypothesis testing. You are specifically required to:
a. Create an equally weighted portfolio (A) of 5 random companies* from the index. Calculate monthly logarithmic returns for that portfolio.
b. Create an equally weighted portfolio (B) of 5 companies using technical analysis (i.e. for the preceding 6 months to the 2 year period select 5 companies with the steepest positive slope of the regression line representing weekly share price movements of the companies against the market). For this you need to screen the entire index. For the selected companies, calculate monthly logarithmic returns for the same period as portfolio A.
c. Correctly specify the hypothesis for testing weak form market efficiency.
d. Test the data representing logarithmic returns of the two portfolios for weak form efficiency by means of the one tail independent samples T-test selecting an appropriate level of significance.
e. Discuss your findings in terms of the results of the test.
f. Critically evaluate generalisability of your findings in terms of contemporary empirical study findings on weak form market efficiency and Random Walk Theory.
- this must be done independently and therefore you should end up with a Portfolio A which is different from other students.
Part B 1500 words: Section B Academic Essay
You are required to write one of two essays. Both of the essays relate to International Merger & Acquisition activity in the pharmaceutical industry, in particular the bid by Bayer to buy Monsanto for $56 bn. Specifically the students are required in their chosen essay to reference key components of the "Case Article", and Bayer press releases relating to the merger (links provided below). Students are also required to conduct independent research to collect all relevant information about the deal.
Essay 1: 1. You are required to critically evaluate the effect of Capital Structure and Cost of Capital upon the wealth returns that Bayer's shareholders can expect when the a company engages in International Merger and Acquisition activity. Your answer should specifically relate to Bayer's bid for Monsanto, and demonstrate an extensive engagement with appropriate academic literature. Students are expected to specifically comment on the method of funding for the Bayer's bid and use academic literature to critically analyse the possible effects for the bid structure, and are expected to specifically comment on the method of financing specified in the below press release:
- Bayer increases Monsanto offer and provides certainty on financing and regulatory matters
Your essay should conclude by coming to a judgement as to whether or not Bayers' shareholders should support the deal as one which would be wealth creating, or otherwise.
Essay 2: 2. You are required to critically evaluate the ways in which Monsanto shareholders can first understand the value of the shares they own, and then use that evaluation to judge whether or not bids for those shares rationally and efficiently reflect ‘good value' in a dynamic marketplace. Your essay should comment specifically on the section (below) of the article related to market price reactions to Bayer's $56bn bid and display an extensive engagement with appropriate academic literature.
Bayer announced this week "advanced negotiations" and a sweetened offer of $127.50 a share, or $56 billion, as both sides seek to end more than three months of back-and-forth over price. The bid is 18 percent above Monsanto's closing price on Thursday in New York and if successful, would lead to the biggest deal this year and largest ever by a German company.
Monsanto has been pushing for a price closer to $130 a share, according to people familiar with the matter. The companies are also discussing increasing the $1.5 billion break fee that Bayer would pay Monsanto if the deal doesn't pass muster with regulators, one of the people said.
Your essay should conclude by coming to a judgement as to whether or not Monsanto shareholders should accept the deal at the offered price.
Information related to above question is enclosed below:
Attachment:- CORPORATEFINANCEBRIEF.rar