ECF2226: Investment Finance - Challenging Business Problems - Accounting and Finance Assignment Help

Assignment Task:

ASSIGNMENT INSTRUCTIONS 

i. Each student should select two companies from the excel file (ASX 100 CONSTITUENTS BY GICS.xlsx) available on Blackboard under Assignment Instructions for the assignment. These two companies must belong to two different GICS. The companies have been selected from the top 100 listed firms trading on the Australian Stock Exchange. 

ii. This assignment contains 2 components: Business report (word document) along with an Excel worksheet. Both components must be submitted for marking purposes via Blackboard assignment submission. The submission link will be made available under Assignment on Blackboard closer to the due date.

QUESTION 1:

HOLDING PERIOD RETURN (HPR), ARITHMETIC AVERAGE RATE OF RETURN (AAR) AND GEOMETRIC RATE OF RETURN (GAR). (9+8 MARKS) Select one company from the list and download monthly prices from 1st January 2017 to 31st July 2020 from Eikon databases and save the data in an excel workbook. You may select any company from the list provided. If any other database is used (for any reason), you must mention the source in your solutions, with a clear explanation of why the recommended database hasn’t been used. Calculate the following in an Excel workbook and include this in the part of the business report, along with an explanation of the method used 

a) Calculate monthly HPRs using the closing prices for the company during the forty-three (43) months. Plot these results on a line graph.

b) Calculate the following summary statistics for your returns: 

i. Variance and Standard Deviation

ii. Minimum and Maximum returns

c) Calculate the Arithmetic Average and Geometric Average returns for the company. Comment on the findings.

d) Assume you had a savings of $137,000. You had invested the money in your selected company at the beginning of the period. Calculate the number of shares you bought, given a brokerage fee of 15% of the investment capital (your savings) for every transaction (buying or selling).

e) You decided to hold your position for these forty-three (43) months and now decide to sell your shares in the market. Calculate the amount you will gain or lose based on the last market price of the share. You must adjust the amount for brokerage fee as given in (d). 

QUESTION 2:

DAILY VALUE AT RISK (VAR) (5+6 MARKS) Select another company from a different GICS than the company selected in Question 1 and download daily stock prices (closing prices) from 1st January 2017 to 31st July 2020 from Eikon for both the companies. If any other database is used, you must mention the source in your solutions, with a clear explanation of why the recommended database hasn’t been used. 

a) Calculate the daily 1% and 5% Parametric VaR (based on a normal distribution) along with 1% and 5% Historical VaR for the time series returns for both the stocks.

b) Suppose you invested $137,000 each in both stocks. Express the VaR calculated in (a) as Dollar-VaR and compare the VaR for both stocks. 

QUESTION 3:

PORTFOLIO SELECTION (8+6 MARKS) Use the daily stock returns calculated in Question 2 for the two stocks and calculate the following: 

a) Correlation and Covariance for the stock returns

b) Use various weight combination to plot an efficient frontier.

c) Minimum Variance Portfolio weights for the portfolio with these two stocks. 

QUESTION 4:

THE CAPITAL ASSET PRICING MODEL (6+6 MARKS) Download daily stock index values for ASX-All Ordinaries for the same period as for the two stocks fr. The data should be downloaded from Eikon. If any other database is used, you must mention the source in your solutions and use only one source for both stocks1. Assume a risk-free rate of 0.87% 2 per annum. 

a) Calculate the value of ββ for both the stocks using regression analysis.

b) Plot the security characteristic line for both the stocks.

c) Compare the level of market risk ββ of both of your stocks while highlighting any significant factor(s) responsible for the level of ββ. 

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