BAO2001 Corporate Finance

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Course Code: BAO2001
University: Victoria University
Country: Australia

Questions:

The focus of this assignment is on Risk and Return. The expectation is that students will develop technical skills in measuring returns, risk assessment and analysis.

Assignment Components

The exhibit contains monthly returns for Financial Ltd, Construction Ltd and the Stock Market index.

Table 1: Monthly Values for the Market Index and Two Traded Shares.

Month	Market index	Financial Ltd ($)	Construction Ltd ($)
1	4650	13.05	8.00
2	4770	13.40	7.60
3	4840	13.87	7.00
4	4940	13.12	7.70
5	4815	13.37	8.10
6	4788	13.00	8.60
7	5055	13.50	8.30
8	5125	13.90	8.90
9	5035	14.12	9.70
10	5115	14.87	10.20
11	5200	15.25	10.65
12	5255	16.05	11.05
13	5305	16.40	11.45
14	5408	16.00	10.95
15	5510	16.25	10.55
16	5430	16.50	11.00
17	5360	17.00	10.55
18	5420	17.35	10.10
19	5490	18.00	10.70
20	5555	18.35	9.45
21	5500	18.55	10.12
22	5575	19.20	10.45
23	5645	18.70	10.05
24	5695	18.20	10.85
25	5770	18.75	11.15

Table 2: Previous 5-year Dividend History for the two Listed Companies

Financial Ltd	Construction Ltd
1.00	0.60
1.03	0.62
1.07	0.66
1.11	0.70
1.15	0.74

Tasks

Each team is required to make the following calculations using the statistical functions on Excel:

Convert the price data into returns on a month to month basis. You should have 24 returns for the market and the two shares after you complete this process.
Mean (expected) return and standard deviation for the stock market and the two companies.
The coefficient of variation for the market and the two companies.
The correlation coefficient between Financial and Construction Ltd.
The standard deviation of returns for a portfolio consisting of Financial Ltd and Construction Ltd (assume equal weightings).
Beta coefficient calculation for both Financial and Construction Ltd return of market each individual.
Assuming a risk-free rate of 3% and utilizing the information in both tables use the dividend valuation model to determine the present value of the two shares.Capital n dividend does the evaluation w3

Answers:

1.

Month	Market Index		Financial Ltd		Construction Ltd
Month	Index Points	Share Returns	Share Price ($)	Share Returns	Share Price ($)	Share Returns
1	4650		13.05		8.00
2	4770	2.581%	13.40	2.682%	7.60	-5.000%
3	4840	1.468%	13.87	3.507%	7.00	-7.895%
4	4940	2.066%	13.12	-5.407%	7.70	10.000%
5	4815	-2.530%	13.37	1.905%	8.10	5.195%
6	4788	-0.561%	13.00	-2.767%	8.60	6.173%
7	5055	5.576%	13.50	3.846%	8.30	-3.488%
8	5125	1.385%	13.90	2.963%	8.90	7.229%
9	5035	-1.756%	14.12	1.583%	9.70	8.989%
10	5115	1.589%	14.87	5.312%	10.20	5.155%
11	5200	1.662%	15.25	2.555%	10.65	4.412%
12	5255	1.058%	16.05	5.246%	11.05	3.756%
13	5305	0.951%	16.40	2.181%	11.45	3.620%
14	5408	1.942%	16.00	-2.439%	10.95	-4.367%
15	5510	1.886%	16.25	1.563%	10.55	-3.653%
16	5430	-1.452%	16.50	1.538%	11.00	4.265%
17	5360	-1.289%	17.00	3.030%	10.55	-4.091%
18	5420	1.119%	17.35	2.059%	10.10	-4.265%
19	5490	1.292%	18.00	3.746%	10.70	5.941%
20	5555	1.184%	18.35	1.944%	9.45	-11.682%
21	5500	-0.990%	18.55	1.090%	10.12	7.090%
22	5575	1.364%	19.20	3.504%	10.45	3.261%
23	5645	1.256%	18.70	-2.604%	10.05	-3.828%
24	5695	0.886%	18.20	-2.674%	10.85	7.960%
25	5770	1.317%	18.75	3.022%	11.15	2.765%

2.

Month	Market Index		Financial Ltd		Construction Ltd
Month	Index Points	Share Returns	Share Price ($)	Share Returns	Share Price ($)	Share Returns
1	4650		13.05		8.00
2	4770	2.581%	13.40	2.682%	7.60	-5.000%
3	4840	1.468%	13.87	3.507%	7.00	-7.895%
4	4940	2.066%	13.12	-5.407%	7.70	10.000%
5	4815	-2.530%	13.37	1.905%	8.10	5.195%
6	4788	-0.561%	13.00	-2.767%	8.60	6.173%
7	5055	5.576%	13.50	3.846%	8.30	-3.488%
8	5125	1.385%	13.90	2.963%	8.90	7.229%
9	5035	-1.756%	14.12	1.583%	9.70	8.989%
10	5115	1.589%	14.87	5.312%	10.20	5.155%
11	5200	1.662%	15.25	2.555%	10.65	4.412%
12	5255	1.058%	16.05	5.246%	11.05	3.756%
13	5305	0.951%	16.40	2.181%	11.45	3.620%
14	5408	1.942%	16.00	-2.439%	10.95	-4.367%
15	5510	1.886%	16.25	1.563%	10.55	-3.653%
16	5430	-1.452%	16.50	1.538%	11.00	4.265%
17	5360	-1.289%	17.00	3.030%	10.55	-4.091%
18	5420	1.119%	17.35	2.059%	10.10	-4.265%
19	5490	1.292%	18.00	3.746%	10.70	5.941%
20	5555	1.184%	18.35	1.944%	9.45	-11.682%
21	5500	-0.990%	18.55	1.090%	10.12	7.090%
22	5575	1.364%	19.20	3.504%	10.45	3.261%
23	5645	1.256%	18.70	-2.604%	10.05	-3.828%
24	5695	0.886%	18.20	-2.674%	10.85	7.960%
25	5770	1.317%	18.75	3.022%	11.15	2.765%
Mean (expected) in annual term		11.001%		18.693%		18.770%
Standard Deviation		1.686%		2.746%		5.956%

3.

Month	Market Index		Financial Ltd		Construction Ltd
Month	Index Points	Share Returns	Share Price ($)	Share Returns	Share Price ($)	Share Returns
1	4650		13.05		8.00
2	4770	2.581%	13.40	2.682%	7.60	-5.000%
3	4840	1.468%	13.87	3.507%	7.00	-7.895%
4	4940	2.066%	13.12	-5.407%	7.70	10.000%
5	4815	-2.530%	13.37	1.905%	8.10	5.195%
6	4788	-0.561%	13.00	-2.767%	8.60	6.173%
7	5055	5.576%	13.50	3.846%	8.30	-3.488%
8	5125	1.385%	13.90	2.963%	8.90	7.229%
9	5035	-1.756%	14.12	1.583%	9.70	8.989%
10	5115	1.589%	14.87	5.312%	10.20	5.155%
11	5200	1.662%	15.25	2.555%	10.65	4.412%
12	5255	1.058%	16.05	5.246%	11.05	3.756%
13	5305	0.951%	16.40	2.181%	11.45	3.620%
14	5408	1.942%	16.00	-2.439%	10.95	-4.367%
15	5510	1.886%	16.25	1.563%	10.55	-3.653%
16	5430	-1.452%	16.50	1.538%	11.00	4.265%
17	5360	-1.289%	17.00	3.030%	10.55	-4.091%
18	5420	1.119%	17.35	2.059%	10.10	-4.265%
19	5490	1.292%	18.00	3.746%	10.70	5.941%
20	5555	1.184%	18.35	1.944%	9.45	-11.682%
21	5500	-0.990%	18.55	1.090%	10.12	7.090%
22	5575	1.364%	19.20	3.504%	10.45	3.261%
23	5645	1.256%	18.70	-2.604%	10.05	-3.828%
24	5695	0.886%	18.20	-2.674%	10.85	7.960%
25	5770	1.317%	18.75	3.022%	11.15	2.765%
Mean (expected) in monthly		0.917%		1.558%		1.564%
Mean (expected) in annually		11.001%		18.693%		18.770%
Standard Deviation		1.686%		2.746%		5.956%
Coefficient of Variation		1.839		1.763		3.808

4.

Month	Market Index		Financial Ltd		Construction Ltd
Month	Index Points	Share Returns	Share Price ($)	Share Returns	Share Price ($)	Share Returns
1	4650		13.05		8.00
2	4770	2.581%	13.40	2.682%	7.60	-5.000%
3	4840	1.468%	13.87	3.507%	7.00	-7.895%
4	4940	2.066%	13.12	-5.407%	7.70	10.000%
5	4815	-2.530%	13.37	1.905%	8.10	5.195%
6	4788	-0.561%	13.00	-2.767%	8.60	6.173%
7	5055	5.576%	13.50	3.846%	8.30	-3.488%
8	5125	1.385%	13.90	2.963%	8.90	7.229%
9	5035	-1.756%	14.12	1.583%	9.70	8.989%
10	5115	1.589%	14.87	5.312%	10.20	5.155%
11	5200	1.662%	15.25	2.555%	10.65	4.412%
12	5255	1.058%	16.05	5.246%	11.05	3.756%
13	5305	0.951%	16.40	2.181%	11.45	3.620%
14	5408	1.942%	16.00	-2.439%	10.95	-4.367%
15	5510	1.886%	16.25	1.563%	10.55	-3.653%
16	5430	-1.452%	16.50	1.538%	11.00	4.265%
17	5360	-1.289%	17.00	3.030%	10.55	-4.091%
18	5420	1.119%	17.35	2.059%	10.10	-4.265%
19	5490	1.292%	18.00	3.746%	10.70	5.941%
20	5555	1.184%	18.35	1.944%	9.45	-11.682%
21	5500	-0.990%	18.55	1.090%	10.12	7.090%
22	5575	1.364%	19.20	3.504%	10.45	3.261%
23	5645	1.256%	18.70	-2.604%	10.05	-3.828%
24	5695	0.886%	18.20	-2.674%	10.85	7.960%
25	5770	1.317%	18.75	3.022%	11.15	2.765%
Correlation Coefficient between Financial Ltd and Construction Ltd					-0.176

5.

Month	Market Index		Financial Ltd		Construction Ltd
Month	Index Points	Share Returns	Share Price ($)	Share Returns	Share Price ($)	Share Returns
1	4650		13.05		8.00
2	4770	2.581%	13.40	2.682%	7.60	-5.000%
3	4840	1.468%	13.87	3.507%	7.00	-7.895%
4	4940	2.066%	13.12	-5.407%	7.70	10.000%
5	4815	-2.530%	13.37	1.905%	8.10	5.195%
6	4788	-0.561%	13.00	-2.767%	8.60	6.173%
7	5055	5.576%	13.50	3.846%	8.30	-3.488%
8	5125	1.385%	13.90	2.963%	8.90	7.229%
9	5035	-1.756%	14.12	1.583%	9.70	8.989%
10	5115	1.589%	14.87	5.312%	10.20	5.155%
11	5200	1.662%	15.25	2.555%	10.65	4.412%
12	5255	1.058%	16.05	5.246%	11.05	3.756%
13	5305	0.951%	16.40	2.181%	11.45	3.620%
14	5408	1.942%	16.00	-2.439%	10.95	-4.367%
15	5510	1.886%	16.25	1.563%	10.55	-3.653%
16	5430	-1.452%	16.50	1.538%	11.00	4.265%
17	5360	-1.289%	17.00	3.030%	10.55	-4.091%
18	5420	1.119%	17.35	2.059%	10.10	-4.265%
19	5490	1.292%	18.00	3.746%	10.70	5.941%
20	5555	1.184%	18.35	1.944%	9.45	-11.682%
21	5500	-0.990%	18.55	1.090%	10.12	7.090%
22	5575	1.364%	19.20	3.504%	10.45	3.261%
23	5645	1.256%	18.70	-2.604%	10.05	-3.828%
24	5695	0.886%	18.20	-2.674%	10.85	7.960%
25	5770	1.317%	18.75	3.022%	11.15	2.765%
Standard Deviation		1.686%		2.746%		5.956%
Correlation Coefficient between Financial Ltd and Construction Ltd					-0.176
SD of Portfolio b/w Financial Ltd & Construction Ltd					3.052%

6.

Month	Market Index		Financial Ltd		Construction Ltd
Month	Index Points	Share Returns	Share Price ($)	Share Returns	Share Price ($)	Share Returns
1	4650		13.05		8.00
2	4770	2.581%	13.40	2.682%	7.60	-5.000%
3	4840	1.468%	13.87	3.507%	7.00	-7.895%
4	4940	2.066%	13.12	-5.407%	7.70	10.000%
5	4815	-2.530%	13.37	1.905%	8.10	5.195%
6	4788	-0.561%	13.00	-2.767%	8.60	6.173%
7	5055	5.576%	13.50	3.846%	8.30	-3.488%
8	5125	1.385%	13.90	2.963%	8.90	7.229%
9	5035	-1.756%	14.12	1.583%	9.70	8.989%
10	5115	1.589%	14.87	5.312%	10.20	5.155%
11	5200	1.662%	15.25	2.555%	10.65	4.412%
12	5255	1.058%	16.05	5.246%	11.05	3.756%
13	5305	0.951%	16.40	2.181%	11.45	3.620%
14	5408	1.942%	16.00	-2.439%	10.95	-4.367%
15	5510	1.886%	16.25	1.563%	10.55	-3.653%
16	5430	-1.452%	16.50	1.538%	11.00	4.265%
17	5360	-1.289%	17.00	3.030%	10.55	-4.091%
18	5420	1.119%	17.35	2.059%	10.10	-4.265%
19	5490	1.292%	18.00	3.746%	10.70	5.941%
20	5555	1.184%	18.35	1.944%	9.45	-11.682%
21	5500	-0.990%	18.55	1.090%	10.12	7.090%
22	5575	1.364%	19.20	3.504%	10.45	3.261%
23	5645	1.256%	18.70	-2.604%	10.05	-3.828%
24	5695	0.886%	18.20	-2.674%	10.85	7.960%
25	5770	1.317%	18.75	3.022%	11.15	2.765%
Beta Coefficient of Financial Ltd			0.153
Beta Coefficient of Construction Ltd			-1.239

7.

Financial Ltd
Dividend	Change in Dividend	Growth Rate
1.00
1.03	0.03	3.00%
1.07	0.04	3.88%
1.11	0.04	3.74%
1.15	0.04	3.60%
Average Growth		3.56%

Construction Ltd
Dividend	Change in Dividend	Growth Rate
0.60
0.62	0.02	3.33%
0.66	0.04	6.45%
0.70	0.04	6.06%
0.74	0.04	5.71%
Average Growth		5.39%

Market Return = 11.00%

Every investor would like to have minimum rate of return equal to atleast market rate of return. Therefore, in the absence of specific information, it is presumed that investors' required rate of return is equal to the market rate of return which is 11%.

Current price of share      =   Current Dividend (1 + Growth Rate) / (Required rate of return - Growth rate)

Current price of share of Financial Ltd.    =   1.15 (1 + 3.56%) / (11% - 3.56%)
=   $16.00

Current price of share of Construction Ltd.    =   0.74 (1 + 5.39%) / (11% - 5.39%)

Cite This Work

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My Assignment Help. (2020). Corporate Finance. Retrieved from https://myassignmenthelp.com/free-samples/bao2001-corporate-finance/convert-the-price-data-into-returns.html.

"Corporate Finance." My Assignment Help, 2020, https://myassignmenthelp.com/free-samples/bao2001-corporate-finance/convert-the-price-data-into-returns.html.

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[Accessed 28 November 2020].

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My Assignment Help. Corporate Finance [Internet]. My Assignment Help. 2020 [cited 28 November 2020]. Available from: https://myassignmenthelp.com/free-samples/bao2001-corporate-finance/convert-the-price-data-into-returns.html.

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