FIN 222 - Corporate Finance Individual Major Assignment - Accounting and Finance Assignment Help

Assignment Task

Objective of the Assignment  
In Lecture 4 (CH11 and CH12), you were introduced to the concept of systematic  risk, as measured by beta. Beta is an indicator of an asset’s exposure (or  vulnerability) to systematic risk and evaluates the degree to which an asset’s  return is correlated with the market return. Beta is a key parameter in the Capital  Asset Pricing Model (CAPM) which is most commonly used asset pricing model for  the estimation of required rate of returns on a share (i.e. cost of equity=rE). This  assignment consists of two parts. Part I directs you to work with real financial  data in Excel and aims to take you through the basic exercise of estimating a  company beta and computing statistics which can be evaluated as part of  investment decision-making process. Part II requires you to write a report based  on the outputs obtained from the first part. In this manual, you will also find out  how to download historical share price and market index data from the web portal.  
Details of Questions 
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. 

 Instructions!  
a. To learn about the dividend-paying company you have been allocated  to, please go to   
b. To download the data, go to http://au.finance.yahoo.com  
c. Type the name of your company in the search box. Then click “Search”.  d. Click the tab titled “Historical Data”.  
e. Set Start date as 01/07/2015 and End date as 01/07/2020 (sample period).  Please note that date format should be 'dd/mm/yyyy'. Set frequency at  ‘Monthly’. Click “Apply”.  
f. Click “Download data”. Save the data using the file extension .xlsx  or .xls. Do not use .csv or .xlsm  
g. You will see seven columns in the saved spreadsheet with data ranging  from 01/07/2015 to 01/07/2020. All we need is Date and Close price [P].  Delete other columns.
h. Although shown on the screen, you will see that the downloaded data  does not contain dividend figures. Please label the third column as  dividend and manually enter the dividend values into the cell. For  example, if the dividend amount of $0.855978 was shown on 6 September  2018, enter this value into the cell to the right of the price figure on 1/10/2018 so that the return earned from 1/09/2018 to 1/10/2018 will  include dividends paid during September).  
i. Replicate steps b to g to download market index data [m]. For this  assignment, the Australian market index “S&P/ASX 200” is to be used.  Symbol to be entered in search box is ^AXJO.  
j. Display the following four columns on the same spreadsheet; i) date, ii)  close price for your stock [P], iii) dividend for your stock [D], iv) close  price for the market index [m]. Then save the file in .xlsx or .xls format.  

2. Calculate the monthly realised returns for your stock and market  index. [5 marks]    
PART II   
1. Conduct some market research to find out what has been happening to your stock for the  last 5 years. Based on what we learnt, there must be two primary sources which cause  the prices of your stock to plunge (i.e. decline) at certain times; Unsystematic risk and  Systematic risk. Highlight two specific down periods where one is caused by  unsystematic risk and the other by systematic risk. [11 marks]  
For each, discuss the real-event in detail and how it affected the company  performance on the day (or over the days) by referring to price changes (You can  have a look at daily price changes in Yahoo by following 1.e. in Part I and changing  the option to ‘Daily’). Clearly discuss through what channels company  performance would have been affected.  
For each, discuss how S&P/ASX200 responded on the same day (or over the days)  by referring to value changes.  
Discuss your findings with reference to the impact of unsystematic and systematic  risks.  
If your answer contains plagiarised materials, no marks will be given.  
2. Discuss how strongly (or weakly) your stock is correlated with the market index,  S&P/ASX200 by referring to an appropriate measure in Part I.  [2 marks]  
3. Discuss which asset, your stock or the market index (S&P/ASX200), is more sensitive to  the changes in economic conditions by referring to an appropriate measure in Part I. 
4. What is the standard deviation of your stock and the standard deviation of the market  index? What is the standard deviation of a portfolio composed of 60% your stock and 40%  the market index? Compare standard deviations and show that you were able to achieve  diversification benefits by combining two assets.  [7 marks]  
5. Suppose that you consider forming a two-asset portfolio by investing 60% of your wealth  in your first stock and 40% in the market index.  
5.1. Compute the beta of your portfolio. [2 marks]  5.2 Compute the required return of your portfolio. Use 6.5% as a market risk premium  and the 10-year government bond rate on 31 July 2020 as a risk-free rate. The 10-year  government bond rates can be obtained from  http://www.rba.gov.au/statistics/tables/index.html#interest-rates. See “Capital market  yields - Government bonds-daily” under Interest Rates. The units of rates shown are per  cent (%) per annum. [2 marks] 
5.3 Compute the expected return of your portfolio using the annual average return. (Note:  Calculate the annual average return of an individual asset using the formula given  in Q2, Part I. Each interval is to be July in Year t to July in Year t+1.)

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