The attachment is below. Thank you

CASE STUDY 2: [1] Melania TrumP

[30 MARKS OUT OF A MAXIMUM POSSIBLE 100 MARKS]

EFB360 FINANCE CAPSTONE

"I am no 'yes' person. No matter who you are married to, you still need to lead your life." ? Melania Trump.

YOUR TASK: As a child, Melania has often spent her time thinking about how she could financially profit from her creative talents.Now that she has the capital and time (with Donald away In Washington most days) she believes it is the right moment to be make her dream a reality and start her own hedge fund to exploit market inefficiencies in creative ways. With her husband Donald Trump always watching over her shoulder, she is now seeking the advice of a number of investment banks to get her started.

It is your team's task to pitch an investment strategy for Melania Trump (Donald will also attend) for her new start-up hedge fund. In creating your pitch, keep in mind any (difficult) questions you may receive from both Melania and Donald.

Since it is difficult to develop your own solid set of strategies in such a short time, and well aware of the short deadline, your boss suggests your team simply grab the investment strategy from a well-known super investor, with slight tweaks. Whilst there are lots of places where you can look for case studiesandexamplesof both successful and unsuccessful investors, your boss has limited your choice of investment strategy to one of the five nominated super investors ("Candidates").Without due, your team must pick one of them.

THE REPORT: Your pitch report should detail the proposed investment strategy and address as many of the questions discussed in weeks 8-12.The report should outline the mechanics of the strategy, i.e. how the strategy works. However, financial markets are not driven by the "mechanics" alone ... they are driven by one of the most ancient traditions of humanity - stories. Thus, to make sure your potential clients will act on it, you need to be able to tell a persuasive positive story about the merits (performance, replicability and suitability) of your strategy. Essentially you have topitch why the market is, in fact, not efficient, and how the proposed strategy has the best chance to take advantage of that inefficiency.

Length: Max 1,500 words, excluding figures/tables/references. Please upload your report in a Powerpoint or Word document (GroupNumber_Case1.docx/pptx) on Blackboard.

Reminder: You must attach minutes of meetings (and other evidence of group correspondence, if any) to the group report.

Due Date: Friday Week 13 by 11:59 pm EST.

THE NARRATIVE: With her husband, U.S. President Donald Trump, spending most of his time in Oval Office, Melania is becoming increasingly aware of the need to empower herself and do her part in making herself and America great again. Inspired by her readings of Donald Trump's numerous books on wealth creation, she is drawing on a number of investment firms (including your team) to give her a head start.

Melania recalls the many stories Donald shared with her over the years, from the first business deal he clinched for Elizabeth Trump & Son (later renamed The Trump Organization) to creating the Trump Empire. Perhaps the most valuable to her (at this moment) are what Donald was taught by his professors at Wharton School of the University of Pennsylvania, one of the world's top business schools.

Due to human involvement, financial markets are complex adaptive systems. As there is no theory that adequately explains human behaviour, the finance field is left with the assumption that prices move randomly. Within this paradigm, the evolution of stock prices can only be explained by random processes. This is also known as the efficient market hypothesis (EMH).

In an efficient market, there is no way to predict price changes (after all we assume changes are completely random), with investing in securities being a zero-sum game. This means that every dollar of profit has to come at the expense of someone else. More depressing, once transaction costs are considered, the sum of the payout to each investor has to be negative.

Professor Sharpe (1991) referred to these ideas as the "arithmetic of active management".

Melania remembers John Bogle, founder of Vanguard Group, once commented to her that "investors as a group can't beat the market, because they are the market. Most individual investors pay too much for the privilege of being average." For these reasons, a low-cost mutual fund that tracks the performance of the aggregate stock market outperforms actively managed funds in the long-run. "We called it an 'index fund'; I named it Vanguard. At first everybody thought it was a joke."

Melania also recalls Donald mentioning that according to the capital asset pricing theory (CAPM) the expected return of an investment is proportional to its systematic risk (beta). Any remaining risk the asset is exposed to does not carry a reward since that risk can be diversified away. In his usual domineering way he shouted, "There is no free lunch!". And went on to say "What you expect isn't necessarily what you actually get. The "average" does not apply in every case with stocks always doing either better or worse than expected. This is why investing is risky."

Donald mentioned a lesson from his college years that the standard test in finance of whether a fund manager is skilful or not is to examine the fund's "alpha", defined as the excess return on a portfolio after accounting for the return explained by an exhaustive set of systematic risk factors. A positive alpha may indicate that the fund manager is skilful. Pointing his finger the usual way, Donald remarked, "Investment superstars, like my good friend Warren Buffett, outperformed the market consistently and by a seemingly large margin." In response to Melania's somewhat perplexed expression, Donald went on to say "Anyone claiming otherwise is lying? fake news!"

Being quite intrigued by these remarks, Melania asked John Bogle about it, who responded "Such anomalies are not too surprising as beating the market is very much like winning a coin-tossing contest. Look, Melania, you put around 1,024 people flipping coins in a room. You tell them all to flip, and one of those 1,024 is going to flip heads ten times in a row. And you'd say, 'What a lucky guy', right? But in the fund business, you'd say 'What a genius'. You can even have gorillas doing it, and the outcome is exactly the same."

The coin-flipping idea reverts back to the notion that asset prices incorporate all available information. In an efficient capital market, any new information will be instantaneously reflected in asset prices (Fama, 1970). Thus at any given time the price of a liquid asset is the best estimate of the market's perception of fundamental value. This makes picking underpriced securities a waste of time.

The above proposition suggests that "alpha" is due to luck and not skill ? not unlike winning (losing) at the roulette table. So, in an efficient market, we would observe both lucky and unlucky investors, making up the distribution of investment fund returns. Even though it is possible for an investor to be consistently lucky, it becomes statistically increasingly unlikely to find anyone who can beat the market year after year after year. Melania recalls Donald always boasting about his superior decision making skills, and on each of these occasions she only nodded in bemused agreement (but only shortly).

While the above points are strong arguments in favor of passive investing, Melania appreciates Warren Buffett's view that you can't treat all investors the same (i.e. the average). Some investors are closer to being average than others and, amongst the outperforming investors, there is an "intellectual origin" for their success. Warren Buffet noted: "I think you will find that a disproportionate number of successful coin-flippers in the investment world came from a very small intellectual village that could be called Graham-and-Doddsville. A concentration of winners that simply cannot be explained by chance."

Melania gathered from the above that past performance may have little bearing on future performance when merely luck is involved, and that lucky fund managers are unlikely to stay lucky for too long. "Luck" is definitely not the approach she wants to take, having seen many people gambled much more than they could afford to lose at the Trump Plaza Casino.She guessed that this may be why Donald has invested so heavily in casinos.

She vaguely recalls Jack Bogle revealing to her at a gala charity event that "I thought there was such a thing as a permanently good investment manager; there is not. They come and go." Melania guesses this may be one of the reasons why some fund managers are no longer invited to her husband's lavish dinner parties.

Having a strong analytical mind, Melania narrows her husband's mechanical regurgitation from university down to a few simple investment principles:

?Select low-cost funds, and hold them.

?Carefully consider the added cost of advice.

?Do not extrapolate past fund performance.

?Beware of star fund managers.

Having barely survived several financial crises, Donald mentioned that there are many dangers in diversification, with the risk concentrated in generic investment ideas correlated across managers. He explained that this could lead to unexpected tail risk, when stormy clouds gather and fund managers are obliged to sell off their risky securities simultaneously causing a price crash (as happened in 1987).

Melania, spending most of her early life in a small town in Slovenia, is somewhat suspicious of free advice, especially when it comes from Donald. She ponders "if markets are indeed efficient, why do active managers exist? Without people actively looking for mispricing, wouldn't markets become inefficient rather quickly? Surely, there had to be some pockets of market inefficiencies that market wizards are able to exploit."

To beat the other investors, she muses "Would it require a large set of extraordinary financial skills? Where can I find someone like that? Of course, it may be that some investors have systematically better access to information than others. Or, due to their vast amount of capital, are some investors more able to buy stocks at a discount? ... Should I assume that fund managers are truly outsiders in the firms they invest?" Clearly, Melania has considerable doubts about the merits of EMH.

All these questions piqued Melania's interest in financial markets even further. From viewing a number of educational podcasts on youtube she discovers there are many alternative perspectives when it comes to how markets operate:

1.Markets are efficient (Fama).

2.Markets are susceptible to sentiment (Shiller).

3.Markets are speculative guessing games (Keynes).

Melania is quite impressed by Jack Bogle's tenacity to challenge the conventional wisdoms of his time. Clearly, when he founded The Vanguard Group, it made sense that an investment professional who dedicated 100% of his time to investment research would have an advantage over retail investors. Yet, going through decades of research attempting to refute Fama's EMH, past research shows the reality may be much like the opposite.

In forming an opinion as to which camp is most "correct", she decides it may be valuable to get answers to the following questions:

?With what view do most (super) investors agree?

?What lines of reasoning appear false?

?

What valuable investment principles are few practicing?

Melania has invited a number of high profile investment banks at Trump Tower to make a pitch on the proposed investment strategy for her start-up hedge fund.She is very much looking forward to the event. Donald has confirmed he will also attend and support Melania in her decision on the right investment strategy.

The End.

THE CANDIDATES: With that said, it is time to meet the super investors. Some are activist shareholders who attempt to control company boards and restructure company operations, while others apply macro-oriented investment strategies. All have consistently outperformed the market and by a wide margin.

CANDIDATE 1: Carl Icahn ?The Most Feared Man on Wall Street

Founder of Icahn Enterprises LP and Icahn Partners.

"We go in and shine a light on public companies that are not giving shareholders the value they deserve".

CANDIDATE 2: Warren Buffett ?The Oracle of Omaha

Founder of Berkshire Hathaway.

"You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing."

CANDIDATE 3: Ray Dalio ? A Man for All Seasons

Founder of Bridgewater Associates LP.

"I believe that one of the best ways of getting at truth is reflecting with others who have opposing views and who share your interest in finding the truth rather than being proven right"

CANDIDATE 4: Bill Miller ?Value Investing

Founder of Value Trust

"While not expected to be right in every position, if I have invested in securities with a high probability of trading at discounts to intrinsic value, over time, I will outperform the market".

CANDIDATE 5: David Einhorn ? Fooling some of the people all the time.

Founder of Greenlight Capital.

"You see people talk about them and they just don't tend to put a lot of numbers next to the themes that justify these stocks."

End.

Case Study 2 (Melania Trump)

Board Meetings #1 to 6

Melania Trump

MEETING FORMAT:

PART A: In the first part of each board meeting, each team will present to the class a succinct and yet comprehensive discussion (15 minutes maximum per group) addressing at least one question related to your pitch. Please note that your presentation should be strictly limited to well-argued opinions (your value add). It should contain mostly HOTS (higher order thinking).

You are free to choose any question(s) to present each week, but you are reminded that your pitch must address as many of the questions as possible.

PART B: Intra-group discussions will be facilitated in the second part of each board meeting. Also, it provides an opportunity to reflect on your HOTS.

QUESTION BANK.

A: CRITICAL THINKING (AOL 2.1)

(1)In terms of your chosen Candidate's strategy, which academic delusions about market efficiency appears to have little market reality?Provide evidence and examples, where possible.

(2)In terms of your Candidates' strategy, what factors have been responsible for generating positive alpha over long periods? Is the strategy easy to replicate by others? Hints: economies of scale, reputation, informational advantages, initial capital.

(3)You have been made to believe that in an efficient market by taking on higher beta risk you will be expected to increase your financial wealth. Thus, to manage your investment risk (standard deviation) you can do no better than setting up a fully diversified portfolio.Provides arguments against this principle.

(4)On their journey to wealth, how does your Candidate treat Knightian uncertainty? Hint: knowledge ambiguity.

(5)The psychology literature shows there is heterogeneity in human strategic thinking. What role does cognitive ability (reasoning) and adaptability (agility) play in your Candidate's strategy?Provide evidence and examples, where possible.

(6)There has been increasing talk amongst traders that you can mine and parse Tweets and news articles for sentiment (i.e. opinions, perceptions and feelings) indicators that predict stock returns. How does sentiment fit in the idea of market efficiency and speculative bubbles? What implications does market sentiment have for your Candidate's strategy?Hint: The modern view links sentiment to an extraordinary form of intelligence, not irrationality.

(7)Ego (narcissism) is an investor's worst enemy and has the ability to undermine sound decisions making. How are the superinvestors managing their own ego?Give examples, where possible.

(8)Having listened to the investment philosophies pitched by the other teams, pick a principle from any team that stood out for you and that challenges your team's own investment philosophy. Attempt to challenge that team with your team's own viewpoint (deconstruct, subvert, and reconcile their principles to your own).

B: ANALYTICAL THINKING (AOL 2.1)

(1)What 'evidence' do you have about the ability of your Candidate's investments strategy to produce alpha (outperformance)? What does his track record look like? Hint: run an OLS regression of fund return against the index and test for evidence of a positive intercept (alpha). Benchmark portfolios can be found at French's homepage www.mba.tuck.darthmouth.edu/pages/faculty/ken.french/data_libarary.html

(2)You may have noticed that the estimates of alpha are sensitive to the time period examined as well the benchmark chosen. What does this tell you about luck & ability over time? Hint: Some activist funds (Icahn Enterprises for instance) rely on big wins to generate outperformance, underperforming during normal times. How sensitive are your estimates to outliers?

(3)Based on the analysis, how confident are you have in your estimates of the Candidate's alphas? Hint: Discuss reliability about the alpha model.

(4)Has your Candidate persisted with his investment principles over time? If not, what event caused a change in his investment philosophy and was this justified? Hint: Warren Buffett avoids technology businesses since he only invests in what he knows. He has not changed his position since.

(5)Is the superinvestor predicting or influencing? Economics is magical in that you can create an economic asset out of nothing but persuasion. For example, if you persuade people to be more optimistic about a stock, people invest more money and the stock goes up in price. This magic of creating wealth from nothing but persuasion is one of best skills of Donald Trump.

(6)To get a better understanding of how to succeed, you need to delve deeper into the mind of successful people. What beliefs of the Candidate stand out to you and how have these beliefs shaped his investment strategy?Hint: For Warren Buffet see http://www.newyorker.com/business/currency/becoming-warren-buffett-the-man-not-the-investor?

(7)What interesting contradictions have you discovered about your Candidate's strategy? How does the Candidate view conventional finance theories? Hint: David Einhorn argues that indexing is actually an active "momentum" based investment strategy: "... passive money management strategies are fundamentally momentum strategies. ... the more the stock goes up, the more it becomes weighted in the index. The more it becomes weighted in the index, the more important it becomes. It continues going up. It doesn't ever revert. You get a bigger and bigger weighting into the stocks that are already rising. And the stocks that aren't doing well ... they get replaced out of the index or replaced by something else that's going up. So I think when you have a momentum-oriented market you wind up with better performance for passive strategies. When you have something other than that you probably have a better performance for active strategies.

C: CREATIVE THINKING (AOL 2.2)

(1)In zero-sum financial markets, there is a large incentive to act quickly on new information. On the other hand, making calculated and careful investment choices in response to new information often takes time due to knowledge ambiguity. Hence, you spend a lot more time oninformation gathering. How do you resolve this tension between precision and speed when making investment choices? Does your Candidate's strategy lean to one side or the other?

(2)What evidence can you find about the importance of continuous learning in financial markets, i.e. fluid intelligence? Hint: Fluid intelligence is a term used quite frequently to refer to lifelong learning. The idea is that you can improve your ability to solve new problems using reasoning through learning and unlearning throughout your life.This way you become more agile and have a greater change to survive over time. In contrast, crystallized intelligence is defined as the ability to use learned knowledge and experience.

(3)What type of information does the Candidate search for to improve decision making? Provide evidence and examples where possible.

(4)Basic finance theory suggests that financial markets move in response to news, so the more information you have, the better is your investment decision. However, the abundance of news and the speed required to act on it makes it difficult to properly evaluate the credibility of each individual piece of news. Suggest how you can balance the speed with which decisions must be made with management of information sources?Would you stay away from some information sources? If so, why? How do strong prior opinions influence your ability to manage information sources? Hint: Think again!

(5)While listening to other groups, how could you tweak the investment strategy of your Candidate?

(6)What controversial questions do you think Donald will bring up and how would you respond to these?

D: ETHICAL THINKING (AOL 5.2)

(1)In light of Melania being the wife of the current president, where do you draw the line between legal "information gathering" and illegal insider trading?

(2)Melania touted gender equality at a recent invitation-only luncheon honouring International Women's Day Wednesday at the White House: "There remains far more brutal and terrifying incarnations of actual gender persecution which we must face together, such as forced enslavement, sexual abuse and absolute repression of far too many women and girls around the globe. We must remember these women in our daily prayers and use our combined resources to help free them from such unthinkable and inhumane circumstances," Melania Trump, March 9, 2017 (http://edition.cnn.com/2017/03/08/politics/melania-trump-international-womens-day-luncheon/) She cited education as a way to solving gender inequality, and pledged her support to help bridge the divide for women. Based on your propose investment strategy, how could Melania further these CSR objectives (e.g., improving gender diversity on corporate boards, promote fairness and equality through investing) besides financial performance? Do you think CSR is a valid goal of firms?

(3)Does your Candidate's strategy exacerbate the agency problem between small outside shareholders and large controlling owners? Do you think this wedge in ownership and control is detrimental to the firm? How would Melania feel about this?

(4)What ethical questions do you think both Melania and Donald will bring up in terms of your proposed investment strategy, and how would you respond to these?

The End

[1] This case was developed by the teaching team for the purpose of students of EFB360 (Finance Capstone). We hope you will enjoy cracking the case as much as we did in developing it.

CASE STUDY 2: 1 MELANIA TRUMP [30 MARKS OUT OF A MAXIMUM POSSIBLE 100 MARKS] EFB360 FINANCE CAPSTONE \"I am no 'yes' person. No matter who you are married to, you still need to lead your life.\" Melania Trump. This case was developed by the teaching team for the purpose of students of EFB360 (Finance Capstone). We hope you will enjoy cracking the case as much as we did in developing it. 1 1|Page YOUR TASK: As a child, Melania has often spent her time thinking about how she could financially profit from her creative talents. Now that she has the capital and time (with Donald away In Washington most days) she believes it is the right moment to be make her dream a reality and start her own hedge fund to exploit market inefficiencies in creative ways. With her husband Donald Trump always watching over her shoulder, she is now seeking the advice of a number of investment banks to get her started. It is your team's task to pitch an investment strategy for Melania Trump (Donald will also attend) for her new start-up hedge fund. In creating your pitch, keep in mind any (difficult) questions you may receive from both Melania and Donald. Since it is difficult to develop your own solid set of strategies in such a short time, and well aware of the short deadline, your boss suggests your team simply grab the investment strategy from a well-known super investor, with slight tweaks. Whilst there are lots of places where you can look for case studies and examples of both successful and unsuccessful investors, your boss has limited your choice of investment strategy to one of the five nominated super investors (\"Candidates\"). Without due, your team must pick one of them. THE REPORT: Your pitch report should detail the proposed investment strategy and address as many of the questions discussed in weeks 8-12. The report should outline the mechanics of the strategy, i.e. how the strategy works. However, financial markets are not driven by the \"mechanics\" alone ... they are driven by one of the most ancient traditions of humanity - stories. Thus, to make sure your potential clients will act on it, you need to be able to tell a persuasive positive story about the merits (performance, replicability and suitability) of your strategy. Essentially you have to pitch why the market is, in fact, not efficient, and how the proposed strategy has the best chance to take advantage of that inefficiency. Length: Max 1,500 words, excluding figures/tables/references. Please upload your report in a Powerpoint or Word document (GroupNumber_Case1.docx/pptx) on Blackboard. 2|Page Reminder: You must attach minutes of meetings (and other evidence of group correspondence, if any) to the group report. Due Date: Friday Week 13 by 11:59 pm EST. THE NARRATIVE: With her husband, U.S. President Donald Trump, spending most of his time in Oval Office, Melania is becoming increasingly aware of the need to empower herself and do her part in making herself and America great again. Inspired by her readings of Donald Trump's numerous books on wealth creation, she is drawing on a number of investment firms (including your team) to give her a head start. Melania recalls the many stories Donald shared with her over the years, from the first business deal he clinched for Elizabeth Trump & Son (later renamed The Trump Organization) to creating the Trump Empire. Perhaps the most valuable to her (at this moment) are what Donald was taught by his professors at Wharton School of the University of Pennsylvania, one of the world's top business schools. Due to human involvement, financial markets are complex adaptive systems. As there is no theory that adequately explains human behaviour, the finance field is left with the assumption that prices move randomly. Within this paradigm, the evolution of stock prices can only be explained by random processes. This is also known as the efficient market hypothesis (EMH). In an efficient market, there is no way to predict price changes (after all we assume changes are completely random), with investing in securities being a zero-sum game. This means that every dollar of profit has to come at the expense of someone else. More depressing, once transaction costs are considered, the sum of the payout to each investor has to be negative. Professor Sharpe (1991) referred to these ideas as the \"arithmetic of active management\". 3|Page Melania remembers John Bogle, founder of Vanguard Group, once commented to her that \"investors as a group can't beat the market, because they are the market. Most individual investors pay too much for the privilege of being average.\" For these reasons, a low-cost mutual fund that tracks the performance of the aggregate stock market outperforms actively managed funds in the long-run. \"We called it an 'index fund'; I named it Vanguard. At first everybody thought it was a joke.\" Melania also recalls Donald mentioning that according to the capital asset pricing theory (CAPM) the expected return of an investment is proportional to its systematic risk (beta). Any remaining risk the asset is exposed to does not carry a reward since that risk can be diversified away. In his usual domineering way he shouted, \"There is no free lunch!\". And went on to say \"What you expect isn't necessarily what you actually get. The \"average\" does not apply in every case with stocks always doing either better or worse than expected. This is why investing is risky.\" Donald mentioned a lesson from his college years that the standard test in finance of whether a fund manager is skilful or not is to examine the fund's \"alpha\