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1.    Calculate the monthly holding-period returns for the market index and 2 companies.

2.    Calculate the (i) arithmetic average return and (ii) annualised returns for the market index and the company. Compare the annual returns of the market and 2 companies and comment.

3.    Calculate the standard deviations of the returns of the Market index and 2 companies. Annualise the standard deviations and compare them and comment. Which has lower annual standard deviation - market or companies and why?

4.    Calculate the beta for both companies. Using the concept of the Beta as a 'measure of risk' comment on the riskiness of the companies.

5.    You have decided to have portfolio of 2 companies to reduce the investment risk consisting of 50% investment in each company. Calculate the Portfolio beta. Is portfolio beta is smaller or bigger that individual company beta? Explain your answer.

6.    Calculate required rate of return for both companies using the Capital Asset Pricing Model (CAPM). Assume that Australian Government Bond rate is 4%. (Hint: you need to use the answers calculated for earlier questions)

7.    Both companies you have chosen can sell bond at the coupon rates of 10%. Assuming that both companies have capital structure of 55% debt and 45% equity. Calculate the Weighted Average Cost of Capital (WACC) of both companies. (Assume the company tax rate is 30%)

8.    Now suppose both companies revised their capital structure. The revised structure has 65% debt and 35% equity. Have WACC of either increased or decreased and why? (Assume the company tax rate is 30%).

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