Market Index - Two Traded Shares - Some Quantitative Evidence - Marketing Report Writing Assessment Answer

Assessment Task:

 Marketing Report Writing Assessment Answer 

The Numbers
You are provided several sets of numbers for the team to use in the presentation (Exhibit 1). The first set is 25 observations of historical monthly share prices for two different stocks and the historical monthly share market index over the same period. These representative numbers have been extracted from the Internet. It also indicates to each team that the proper measure of risk for a portfolio would have to be calculated using this kind of data series

Your team is also required to produce an approximately 700 word report that comments on the results calculated above. The report will need to refer to each statistic calculated and interpret (not simply summarise your results) 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. That is, what is the implication for risk and required return and what impact will this have on
the asset’s price?

Questions
Each team is instructed to specifically address all of the following questions within your report:

1. Using the information given in Exhibit 1, calculate the historical returns for each company and the market index.With the use of the excel functions calculate the average
monthly return and standard deviation of returns for each company and the market index.

2. Using your answers to Question 1, above, and assuming that investors can only invest in one of the two alternative shares in Exhibit 1, use the average return and standard deviation to determine which share would be the most appropriate for a risk-averse investor. Provide numerical justification for your selection based on the coefficient of variation.

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