Question 4 – Capital Markets Research (10 marks) “I love ‘The Warren Buffet Way’. In fact, one of my first clients introduced himself by saying, ‘I am Fred and I’d like to invest the Warren Buffet Way’. Well whoopee do! What shall we do? Get the annual reports of the top 200 companies. Analyse the accounts of each, assess ‘value’ and then go to the stock market and find out that ‘wow, I’m right and the whole market is wrong’ and the share price is trading below the true ‘value’. Then purchase the shares and wait for that value to inevitably emerge.” Quote from a stockbroker, Sydney Morning Herald.
With reference to theory and capital markets research, suggest ways in which the client is correct and incorrect in their investment approach? (10 marks) Total – 10 marks
Question 4 – Fair Value Accounting (10 marks) Fair value accounting allows for three approaches to valuation – the cost approach, the market approach and the income approach. Applying the three approaches to value a freight container ship, discuss the shortcomings of each approach. (10 marks)
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