Assignment Task :
Tasks for Case Study 1
a) Using the data above, calculate:
(1) The historical monthly rates of return for the market index only (monthly rates of return for the companies are given); and
(2) The historical average rate of return and standard deviation of returns for:
i) your case company;
ii) the reference company;
iii) the market index; and
iv) a portfolio consisting of a 40% investment in your case company and a 60% investment in the reference company.
b) Calculate expected returns and portfolio beta as follows:
(1) Use CAPM to estimate the expected return as at 29 May 2020 for the shares of: 1) your case company; and2)the reference company. To do this, use the yield to maturity on that date of a 10-year Australian Government bond as a proxy for the risk-free rate, assume the market risk premium is 6% and use your chosen case company’s beta in July 2020. (Data to be collected from the first link in the Web Links section of the unit site.) Assume that the reference company’s beta is -0.40.
(2) Using the data from part b(1), calculate the portfolio expected return and beta, again assuming 40% and 60% weights for your case company and the reference company respectively.
c) Drawing on expectations from theory and incorporating the overall context of your chosen company, discuss the risk and return measures you have calculated.
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