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Subject Code : FIN222
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FIN222: Corporate Finance Group Assignment Help
Assignment Task:

This manual outlines the following.
 Objective of the assignment
 Details of questions (Instructions will be provided wherever necessary.)
 Format requirements
 Printing requirements
 Submission requirements

PART 1

To successfully complete PART 1, please read each section carefully. I also encourage you to read the entire manual before you start the assignment. For Part
I, all computations are required to be produced in excel spreadsheets.

1. Download historical prices for two companies and market index into Excel.

2. Calculate the monthly realized returns for your stocks and market index.

Instructions!
a. We learned in Lecture 4 that realized return at t can be calculated as

FIN222: Corporate Finance Group Assignment Help

b. In each spreadsheet produced above, two additional columns should be created for computing monthly realized returns for your stock and the
market index, which should be available from 1/09/2014 as you don’t have price data on 1/07/2014 for the calculation of returns for 1/08/2014.

c. Dividend values are to be included in the calculation of realized returns for a monthly dividend was paid only.

d. In the end, for each spreadsheet, 60 individual monthly returns should be generated for your stock and for the market index.

3. In each spreadsheet, compute the following for each of your stock and the market index.
3.1. Monthly average returns
3.2. Variance of monthly returns
3.3. Standard Deviation of monthly returns

Instructions!
a. To compute the monthly average returns, use Excel function, =AVERAGE (data range)
b. To compute the variance, use Excel function, =VAR.S (data range)
c. To compute the standard deviation, use Excel function, =STDEV.S(data range)

4. In each spreadsheet, compute the following using returns of your stock and the market index. 
4.1. Covariance
4.2. Correlation Coefficient

Instructions!
a. To compute Covariance between your stock and the market index, use the following Excel function. =COVARIANCE.S (array1, array2) (Array 1 will be 60 monthly returns for your stock while Array 2 will be 60 monthly returns for your market index, or vice versa).

b. To compute Correlation Coefficient between your stock and the market index, use the following Excel function. =CORREL (array1, array2) (Array 1 will be 60 monthly returns for your stock while Array 2 will be 60 monthly returns for your market index, or vice versa).

5. Compute a beta using the following three methods. [5 marks]

5.1. In each spreadsheet, use the following Excel function. =SLOPE(known_ys, known_xs) (known_ys must be 60 monthly returns for your stock while known_xs
must be 60 monthly returns for your market index.) The resulting value is your beta.

5.2. In each spreadsheet, compute the beta using the following formula.
The resulting value is your beta.

FIN222: Corporate Finance Group Assignment Help

5.3. Compute the beta using a regression analysis using a new spreadsheet. Instructions!

A beta can also be computed using a regression analysis.
a. Open a new worksheet in the current file, copy and paste 60 monthly stock returns and 60 monthly market returns. Then go to “Data” tab  “Data analysis” on the far right  “Regression” then click “OK” (If you don’t see ‘Data analysis’ under ‘Data’ tab then click ‘Options’ under ‘File’ tab. Go to ‘add-ins’ from the left-hand side menu. On the bottom, you will see a drop-down menu next to ‘Manage’. Select ‘Excel Add-ins’ then Click ‘Go’ and tick ‘analysis toolpak’ and click ‘OK’. ‘Data analysis’ should
now appear under the ‘Data’ tab.)

PART II

For Part II, you are required to answer the following questions. For calculation questions, you must show all workings to prevent the loss of marks allocated to the process. If you use excel functions in the process, you must show data and formulas used in the spreadsheet.

1. Conduct some market research to find out what has been happening to your stocks for the last 5 years. Based on what we learned, there must be two primary sources which caused the prices of your stock to plunge (i.e. decline) at certain times: unsystematic risk and systematic risk.

1.1. Source of systematic risk
 Identify one event as a source of systematic risk which affected both of your stocks negatively.

 Discuss the event in detail and describe how the event affected the performance of two stocks on the day of the event by referring to % price changes. (You will be able to observe daily prices on http://au.finance.yahoo.com.)

Discuss how S&P/ASX200 (Australian market index) responded on the same day to the event.

 Discuss your findings above reveal.

1.2. Source of unsystematic risk (for both stocks)
 Identify one event as a source of unsystematic risk which affected your stock negatively.

 Discuss the event in detail and describe how the event affected stock performance on the day of the event by referring to price changes.

 Discuss how S&P/ASX200 (Australian market index) responded on the same day to the event.
 Discuss your findings above reveal.

2. Suppose that you have $10,000 and consider forming a three-asset portfolio by investing $2,000 in your stock with a higher beta, $5,000 in your stock with a lower beta, and the rest in the 10-year Australia government bonds.

2.1. Calculate the portfolio beta. 

2.2. Calculate the required rate of return for your portfolio using two methods (Please refer to Week 5 tutorial). Use 6% as a market risk premium and the average 10-year government bond rate for the period from August 2014 to July 2019. See “Capital market yields - Government bonds-monthly” under Interest Rates. The units of rates shown are percent (%) per annum.

2.3. Calculate the annual average return of your portfolio. (Note: Calculate the annual average return of an individual asset using the formula given in Q2, Part I)

2.4. Is your portfolio overpriced or underpriced and why? Consequently, which recommendation would you make, “Buy/Hold” or “Sell/don’t buy”? [9 marks]
Please show all your relevant calculations and justify your decision using the Security

Market Line. Label X-axis, Y-axis, and intercept. Clearly present values on X- and Y- axis when you locate your portfolio in the graph.

3. Suppose that you currently have your wealth equally invested in your two stocks. Calculate the standard deviation of this two-asset portfolio. Also, comment on whether you were able to achieve diversification benefit by combining these two stocks. Please justify your answer.
 

4. Looking at the average monthly return and standard deviation of ASX200 index, can you be 95% confident that it will not lose more than 5% of its value in the month of August in 2019? 

5. Search for the publicly available beta figures for your stocks. What are the beta values for your two stocks from the source you found? (Please mention the source in the report.) These values are likely to differ from the betas you obtained in this assignment. What would ben the possible reasons? 

 

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  • Posted on : September 26th, 2018

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