Introduction
The focus of this assignment is on Risk and Return. The expectation is that students will develop skills in measuring returns, risk assessment and analysis. Students are required to use the data provided in the case problem and exhibits to make various calculations with the view of producing a 400-500 word report.
Guidelines for the Assignment
- Excel functions should be used to complete all statistical calculations.
- The standard of your presentation will be assessed and marked.
- Evidence of your team's breadth and depth of research will be assessed.
- You need to reference. Marks will be deducted from assignments that fail to reference. (Use Harvard Referencing)
- There is an expectation that each team will work collectively rather than independently when completing this assignment. As members of a team you are all jointly responsible for the contents of your assignment.
Exhibit 1: Annualised Monthly Returns for the Market Index and Two Traded Stocks.
|
Month
|
Market index (%)
|
Bank West (%)
|
Clip Industries (%)
|
|
1
|
5.08
|
2.37
|
1.05
|
|
2
|
5.08
|
1.37
|
11.90
|
|
3
|
5.50
|
1.30
|
-1.50
|
|
4
|
1.19
|
7.71
|
-7.37
|
|
5
|
-1.79
|
1.14
|
13.26
|
|
6
|
-1.62
|
1.51
|
-0.70
|
|
7
|
-1.13
|
6.29
|
6.42
|
|
8
|
5.09
|
3.88
|
9.87
|
|
9
|
8.10
|
8.26
|
-0.47
|
|
10
|
0.84
|
0.61
|
-3.17
|
|
11
|
1.70
|
0.12
|
5.12
|
|
12
|
2.74
|
0.90
|
-15.58
|
|
13
|
6.03
|
10.83
|
18.81
|
|
14
|
5.71
|
10.31
|
9.84
|
|
15
|
8.64
|
35.37
|
-2.12
|
|
16
|
11.00
|
22.64
|
-10.67
|
|
17
|
0.49
|
7.31
|
-7.72
|
|
18
|
7.90
|
2.22
|
-17.83
|
|
19
|
7.25
|
10.51
|
-1.84
|
|
20
|
0.88
|
3.76
|
3.44
|
|
21
|
6.17
|
19.47
|
-1.31
|
|
22
|
3.67
|
5.99
|
2.23
|
|
23
|
2.08
|
8.93
|
7.42
|
|
24
|
1.56
|
10.81
|
2.10
|
Questions:
Each team is required to make the following calculations using the statistical functions on Excel:
1. Mean (expected) return and standard deviation for the stock market and the two companies.
2. The coefficient of variation for the market and the two companies.
3. The correlation coefficient between bank West and Clip Industries.
4. The standard deviation of returns for a portfolio consisting of Bank West and Clip Industries (assume equal weightings).
5. Beta coefficient calculation for both Bank West and Clip Industries.
REPORT
Your team is also required to produce a 400-500 word report that comments of the results calculated above. The report will need to refer to each statistic calculated and interpret the result and make comparisons amongst the market index and the two companies. Your team is required to specifically address what each statistic is actually measuring and its implications from a risk and return viewpoint. You will also need to focus on the impact of creating a portfolio of two shares and the implications for risk reduction (You will need to provide some quantitative evidence of risk reduction). Furthermore, the Beta of each company needs to assessed and interpreted in the context of asset pricing.