Critical Analysis of Investment Styles and Cryptocurrencies

This essay critically analyzes Peter Lynch's investment style, addressing common misunderstandings and providing illustrative examples. It also assesses the future of cryptocurrencies, particularly Bitcoin, examining their potential to become mainstream assets despite inherent risks such as phishing, hacking, and regulatory uncertainties. The analysis covers various cryptocurrencies beyond Bitcoin, including Litecoin, Ethereum, ZCash, DASH, Ripple, and Monero, highlighting their unique features and market capitalization. The essay concludes by weighing the opportunities and challenges facing cryptocurrencies in the evolving financial landscape, providing a comprehensive overview of their prospects.

TABLE OF CONTENTS
QUESTION1(1).............................................................................................................................................2
INTRODUCTION...........................................................................................................................................2
QUESTION1(2).............................................................................................................................................5
INTRODUCTION...........................................................................................................................................5
TYPES OF CRYPTOCURRENCY OTHER THAN BITCOIN...................................................................................5
PROBLEM AND RISKS ASSOCIATED WITH CRYPTOCURRENCIES..................................................................7
Question 2 Part 1.........................................................................................................................................8
Generate the price yield curve for a zero coupon bond at different interest rate...................................8
Question 2 Part 2.........................................................................................................................................8
Generate the bonds price yield curve using annual yield ranging from 5% to 10% and differing by 0.5%
.................................................................................................................................................................8
Question 2 Part 3.........................................................................................................................................9
Question 3 Part 1.........................................................................................................................................9
Question 3 Part 2.......................................................................................................................................10
Question 3 Part 3.......................................................................................................................................12
Bibliography...............................................................................................................................................13

QUESTION1(1)
“I have never said ,if you go the mall ,see a star bucks and say it’s a good coffee, you should call Fidelity
brokerage and buy the stock “Critically appraise the misunderstanding of peter Lynch’s investment style
providing illustrative figures where appropriate.
INTRODUCTION
Peter Lynch is one of the greatest known investors of all time. He was a manager of the Magellan fund at
the major brokerage fidelity. In the year 1977 and at the age 33, he took over the Magellan fund and
retires in the year 1990, and ran the fund for 13 years. (Anon., n.d.)His styles of investment are always
adaptive and favourable but Lynch has always stressed on that you should understand what you have
and own. Lynch investment strategy beat almost all mutual fund houses during the last five years of his
service. As29.2%, return is fantastic for public. He also has a keen interest in educating people about
investment.
Despite his respected career both as a fund manager and an author, his basic investment strategy are
quite simple and can be illustrated into four parts:
A. Do you’re Research: Before investing in any company one should research and this is a tireless
and time-consuming job for Lynch when he was a portfolio manager as this is a well-defined
quote “The person that turns over the most rocks wins the game. And that’s always been my
philosophy.” – Peter Lynch. By analyzing many stocks industry wise, geographic region wise and
through different segments, Lynch maximized the profit with his findings of prospects in
investment. For maximizing investment returns, he looked at all prospects of financial markets.
(Anon., 2018)
Research based report is very difficult for an individual investors to prepare and research is a
very important component for a good investment strategy and one has t climb the rock for
analyzing on better stocks. It is believed by Peter Lynch that everyone is intellectually capable of
investing money in stock market. It is said, “Everyone has the brainpower to follow the stock
market. If you made it through fifth-grade math, you can do it.” – Peter Lynch. The main goal is
generally to identify a high quality stock with strong growth prospects. Lynch stressed on
businesses that do not require much knowledge.
B. Understand the importance of diversification: Portfolio managed by Lynch was quite immense.
More than 1000 individual stock positions was holed by Magellan fund till Lynch career .Being an

investment professional he has a diversified portfolio based on the earning prospects of the
company namely
 Fast Growers: Growth of earning between 20% and 50%
 Stalwarts: Companies with huge billion sales and earning range between 10% to 20%.
 Slow Growers: Companies had an earning range below 10% but pay good dividend.
Stalwarts and slow Growers provide a return, which is stable according to Lynch. In order to
reduce the volatility Lynch does not buy stock which has less compelling Opportunity. The stock
picking ability of Lynch with the idea of choosing good quality stock make him owned large
number of stocks.(Anon., 2018)
C. Be patient: according to Lynch, investors who invest money in stock market for long term have
many advantages over those investors who invest it for short term. Investment for long term
makes you defer your capital gain tax with low brokerage and greater sustainability power to
withstand in market. Through patience and long-term investment, one can stand economic
recessions. Holding stocks whose price had already been raised since investment is one of the
Lynch most important aspect. According to Lynch, the performance of stock is not based on the
quarterly results, which motivate the investors to hold it for long term.
D. Invest in what you Know: One of the biggest lesson from Lynch is that one should invest in the
company in which he has overall knowledge and understanding One the most important quality
of his is investing in a stock as a consumer and not as a fund manager as he knows that
consumers are the backbone of the economy. While investing in a particular stock he always
think as a consumer rather than a fund house manager. (Anon., 2018)

QUESTION1 (2)
Warren Buffet says Bit coin ‘Definitely come to a bad ending ‘Critically assess whether crypt currencies
hold any future to join the mainstream asset class or they are just going to be popular in markets that
have zero interest growth such as south Korea and Japan.
INTRODUCTION
Crypto currencies are primarily the same as what we called as electronic money –like PayPal or
WebMoney.It acts as a medium of exchange it has a well built cryptography to firm all the financial
transactions ,regulate if any creation of additional units and check any assets transfer.Cryptocurrency is
one kind of digital currency, virtualcurrency or alternative currency. Itdoes not have a centralized
electronic control but uses a decentralized electronic control. The decentralized works as a strong chain
through ledger technology that acts as a strong database for financial transaction to public.(Anon., n.d.)
TYPES OF CRYPTOCURRENCY OTHER THAN BITCOIN
There are six most important crypto currency other than Bitcoin is:
A. Litecoin (LTC): It is launched in the year 2011 and it is among the beginning currency followed by
Bitcoin and is termed as ‘silver to Bitcoinsgold’. Charlie Lee was the one who created it .It is not
controlled by any central authority and it is based on a global payment network. With the help
of CPU the work of “scrypt” is decoded. Litecoin is quite similar to Bitcoin as it has also same
features as transaction confirmation faster, faster rate of block generation. There is now
growing number of seller who accepts Litecoin.(Anon., 2018)
B. Ethereum: It is launched in the year 2015; it uses decentralized software that uses both smart
contracts and Distributed Applications to run without any obstacle like fraud, error, any third
party interruption. Before the launched of Ethereal, ether was launched in presale and had
received a massive response. It can be used to decentralize; codify. It has $41.4 billion market
capitalization next to Bitcoin. As of today June 2018 it has a market capitalization of $47.47
billion and on June 21 it closed to $525.77.(Anon., 2018)

C. ZCash: It is launched in the year 2016.This currency is quite promising as Bitcoin defines as http
for money, ZCash is like https. It offers a transparency in its transactions. WhileLitecoin and
Etherum record all its financial transactions on a blockchain while ZCash assures you greater
security and confidentiality. It allows all the transaction content to be encrypted by the user
using technique known as cryptographic. As of now June 2018 it has got market capitalization of
$713.254 million and on june21, 2018 it closed at $190.22.(Anon., 2018)
D. DASH: It is also known as Darkcoin.It was launched in the year 2014 and compared to Bitcoin it
is more secretive version. It almost makes the transaction untraceable as it works on a
decentralized master code network. It was developed by Evan Duffield. It was rebranded in the
year 2015 and named as Dash, which stands for Digital Cash. No technological features were
changed through rebranding .It has got a market cap of $1.999 billion and on June 2018 it closed
at $261.03.
E. RIPPLE: It is launched in the year 2012, it offers a real time settlement and too at very low
international costs. This crypto currency enables all cross border payments to be settled with
transparency with real time and at very minimal costs. It doesn’t need a mining technology,
which makes its stand apart from Bitcoin, and altcoins.Computing power is less used as it does
not require mining. In June 2018 it has a market cap of $ 18.9 billion and it closed at $0.534 in
June 2018.(Anon., 2018)
F. MONERO: It was launched in the year April 2014.It is very secure and private currency. After its
launch much interest is seen among cryptographers. The discovery of this crypto currency is
totally donation and community based. It has got a new technique called ‘ring signatures ‘which
enables to have a complete privacy with much focus on decentralization. It has got a market cap
of $1.812 billion on June, 2018 and closed at $123.32.
Still Bitcoin leads among all crypto currency whether it is about popularity among public or market
capitalization. For enterprise solutions generally currency such as Ethereal and Ripple are gaining
popularity while for some advanced features Bitcoin is used .Seeing the current market scenario
cryptocurrency are going to stay for long but how many crypto currency will come out as a winning
leader in this growing competition can only be seen with time.

PROBLEM AND RISKS ASSOCIATED WITH CRYPTOCURRENCIES
Some problems and risks associated with crypto currencies are as follows:
A. Phishing and spoofing payment information: There might be a possibility that malware changes
the address we have copied to transfer money to another person and there is a very little
chance to cross check the address that we have copied especially when the characters are too
long.(Anon., 2017)
It is also possible that the users can be taken to phising website where they are asked to enter
their card details and password.
B. Hacking a payment gateway: Even after using a correct address and reliable payment gateway
can also lead to a loss of money. The most popular case in June 2017 for Ethereumcrypto
currency with address https://classicetherwallet.com/ started taking money from user’swallet.
They had used social engineering methods to proof that they are the owners, after that they
started taking away money, but fortunately the strategy used was not great as they could
manage to take $300,000 in several hours thus saving huge loss.(Anon., 2017)
C. User address error: There can be an error in the address to which money is transferred. Like in
case of crypto currencyEtherum if the last word r digit is not copied than it might be possible
that the money will go into air or it will reach where it was supposed to reach.
D. Loss of wallet files: Loss of wallet through theft is a major problem occurring in crypto currency.
Generally users save their wallet on desktop. Therefore, this can easily steal or lost if the system
crashes. Expert users of crypto currency make copies to their key and buy USB hardware wallets
but these expert crypto currency users are very small.
Centralized e-money is very good now as it requires authentication to complete the transaction
and confirmation through OTP is send via SMS and email and in case of company or huge
amount transaction, use of USB token is mandatory.
E. Insecure ICOs: In the year 2017 projects connected with blockchain and investment on them has
become very famous. Money rising through this type is called ICO-Initial Coin Offering. Crypto
currency has gained much importance in raising funds through internet connection. Through ICO
$1.7 billion has already been funded. Rate of successful projects are very less but still investors
are very optimistic on it.
Main problem associated within it that the market is not regulated through any mechanism or
procedure and there is no mechanism through which risk can be assessed and no guarantee of
return on amount invested.

F. Spoofing a user address: To simply grab money from others through cheating is very simple .In
an ICO, the amount required to be collected opens at a specific time and closes when the
amount required has been collected and the address for the same is also mentioned on the
project website.
It might be possible that the hacker got access to the project website and as soon the ICO open
he change the address with his own. Within an hour all the money gets transfer to that fake
address even the address is showing as fake still the investors continues to transfer money to
that address and that hacker gets a lump sum money within a hour.
Question 2 Part 1
Generate the price yield curve for a zero coupon bond at different interest rate
Amount in Euro
Face value= 100 Actual Days=260
Sl No Rate Price
1 4% 100/1+rate=96.15
2 4.25% 100/1+rate =95.92
3 4.50% 100/1+rate= 95.69
4 4.75% 100/1+rate= 95.47
5 5.00% 100/1+rate =95.24
6 5.25% 100/1+rate= 95.01
7 5.50% 100/1+rate= 94.79
8 5.75% 100/1+rate= 94.56
9 6.00% 100/1+rate= 94.34
10 6.25% 100/1+rate= 94.12
11 6.50% 100/1+rate= 93.90
12 6.75% 100/1+rate= 93.68
13 7.00% 100/1+rate= 93.46
14 7.25% 100/1+rate= 93.24
15 7.50% 100/1+rate= 93.02
16 7.75% 100/1+rate= 92.81
17 8.00% 100/1+rate= 92.59
.

Question 2 Part 2
Generate the bonds price yield curve using annual yield ranging from 5% to
10% and differing by 0.5%
Bond=10 years Rate of Interest=8%,Coupon=Semi annual,Face value(FV)=100
Yield Coupon Maturity Amount Semi Annual Interest Rate Price
5% 4
(FV+Coupon
amount*)=104 (yield/2)=2.5% *102.95
5.5% 4
(FV+Coupon
amount*)=104 (yield/2)=2.8% 102.47
6.0% 4
(FV+Coupon
amount*)=104 (yield/2)=3.0% 102.00
6.5% 4
(FV+Coupon
amount*)=104 (yield/2)=3.3% 101.53
7.0% 4
(FV+Coupon
amount*)=104 (yield/2)=3.5% 101.06
7.5% 4
(FV+Coupon
amount*)=104 (yield/2)=3.8% 100.60
8.0% 4
(FV+Coupon
amount*)=104 (yield/2)=4.0% 100.14
8.5% 4
(FV+Coupon
amount*)=104 (yield/2)=4.3% 99.69
9.0% 4
(FV+Coupon
amount*)=104 (yield/2)=4.5% 99.24
9.5% 4
(FV+Coupon
amount*)=104 (yield/2)=4.8% 98.80
10.0% 4
(FV+Coupon
amount*)=104 (yield/2)=5.0% 98.35
*Coupon Amount =Rs 4

*Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+2.5%+104/1+5%
= 102.95
Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+2.8%+104/1+5.5%
= 102.47
Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+3.0%+104/1+6%
= 102.00
Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+3.3%+104/1+6.5%
= 101.53
Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+3.5%+104/1+7.0%
= 101.06
Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+3.8%+104/1+7.5%
= 100.60
Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+4.0%+104/1+8.0%
= 100.14
Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+4.3%+104/1+8.5%
= 99.69
Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+4.5%+104/1+9.0%
= 99.24
Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+4.8%+104/1+9.5%

= 99.80
Price=Coupon/(1+interest rate)+Maturity amount/(1+semi annual interest rate)
= 4/1+5.0%+104/1+10.0%
= 98.35
(a) What is the price change when the yield curve changes from 8% to 8.5%?
The price change is (-) 0.45.
(b) What is the price change when the yield curve changes from 8% to 7.5%?
The price change is 0.46.
(c) Comment on the capital gain and loss you observe in b and c
The same has occurred because of inverse relation between price of a bond and its yield. As
the yield increases, price fall and vice versa.
(d) Comment on the feature of price yield curve

The features of the price yield curve are:
(a) There exist an inverse relation between price and yield;
(b) With increase in yield rate the fall becomes smaller and vice versa;
Question 2 Part 3
Explain why the yield curve for a lower quality bond could be negatively sloped when the
yield for other bonds are not.
The above situation can happen because of the following reasons:
 Due to rising prices of the lower quality bond in the market on account of speculative
activities;
 Due to economic reasons or recession in the economy;
Question 3 Part 1
Determine the current yield and yield to maturity for each bond selected
Sl
NO Name of Bond
Current
Price
Price 1 year
before
Coup
on
1 Year
Change
Current
Annual Yield
Yield to
Maturity
1 Pakistan 10
year bond 111.64 90.42605 12 33.21 37% 10%
2 Pakistan
I.Sukuk 16/21 96.21 101 5.5 0.71 1% 1.04%
3 Pakistan 1 year
Bond 8.05 6.03 0 2.02 34% 34%
4
UK Glit
Treasury Stock
4.5%
102.289 106.8 4.5 -0.01 0% 0.59%
Pakistan 10 year bond
Current Price =111.64(Given)
Price 1 year before=111.64/1.2346=90.42605

Coupon=12(Given)
One year change=111.64-(90.42605+12)=33.21
Current Annual Yield=33.21/90.42605=37%
Computed YTM=(12+(100-111.64))/(100+111.63)/2=0.085%
YTM(as given in stock exchange)=10%
Pakistan I.Sukuk 16/21
Current Price =96.21(Given)
Price 1 year before=101( From site){ markets.businessinsider.com}
Coupon=5.5(Given)
One year change=96.21-(101+5.5)=0.71
Current Annual Yield=0.71/101=1%
Computed YTM=(5.5+(100-96.21))/(100+96.21)/2=2.367%
YTM(as given in stock exchange)=1.04%
Pakistan 1 year Bond
Current Price =8.05(Given)
Price 1 year before=8.05/1.335=6.03
Coupon=0(Given)
One year change=8.05-(6.03+0)=2.02
Current Annual Yield=2.02./6.03=34%
Computed YTM=(0+(100-8.05))/(100+8.05)/2=42.55%
YTM(as given in stock exchange)=34.00%
UK Glit Treasury Stock 4.5%
Current Price =102.289(Given)
Price 1 year before=106.8(From site){ www.fixedincomeinvestor.co.uk}
Coupon=4.5(Given)
One year change=102.289-(106.8+4.5)=-0.01
Current Annual Yield=-0.01./106.8=0%
Computed YTM=(4.5+(100-102.289))/(100+102.289.21)/2=0.546%
YTM(as given in stock exchange)=0.59%
Further fall the bond the yield were already provided in the stock exchange so the same has not
been computed. If the computation is required, the following formula shall hold good: