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Investment Analysis Report: Historical Data of Stock Prices

## Part (a):

For this group assignment, it is assumed that you and your group members are currently working as interns in the research department of A.P. Investments. Your group is required to write a short report (≤ 4 pages) summarizing your work for the tasks assigned by the head of the research department of A.P. Investments. Your report should include the details of data analysis for investment. In addition, your group should also have an Excel file containing the calculation of average returns and standard deviation and the results of the single index model.

Specifically, the head of the research department has provided your group with monthly historical data for the stock prices of the two companies, denoted as Stock 1 and Stock 2 respectively, assigned to your group (see below), and the NZX 50 index as well as the risk-free rate; and he has asked your group to analyze the data for the purpose of investments in the New Zealand stock market. In particular, he wants your group to do the following:

1. Determine the average returns and standard deviations of returns per annum based on the historical data for the two stocks and NZX50 index.

2. Conduct single index model analysis to evaluate the risk of the two stocks and explain the findings from the analysis, particularly the estimated alpha values of the two stocks and their implications on stock price.

Suppose that the three average returns per annum obtained in Part (a) are used as the estimates of the expected returns for the two stocks and the NZ stock market portfolio respectively. Suppose that the risk-free rate is currently at 2% per annum.

1. Draw a risk-return graph with beta on the x-axis and returns on the y-axis, which shows the Security Market Line (SML), the market portfolio and the two stocks.

2. Determine the fair expected returns for the two stocks according to CAPM and discuss your findings.

Consider an investment portfolio that invests 60% in Stock 1 and 40% in Stock 2.

1. Calculate beta for this portfolio.

2. Estimate the portfolio expected return based on the average returns of the two stocks obtained in Part (a) and the fair expected return of the portfolio according to CAPM.  Comment on your findings on this portfolio and compare them with those for the two individual stocks.

• 2 marks are allocated to the Excel file of the analysis (1 mark for the calculation of average returns and standard deviations, and 1 mark for the analysis of single index model).

• 3 marks are allocated to writing, which includes grammar and syntax, paragraphing, and logical sequencing of arguments.

• The data set for the assignment is provided under the folder of Group Assignment 2 on this course website.

The two companies assigned to your stream are given below.

If you are in Stream 80, the two companies:

• Stock 1: Arvida Group Ltd (ARV.NZ)

• Stock 2: Stanford Ltd (SAN.NZ)

• There is no words limits

• Used a bullet point rather than paragraphs

• Answer all the parts A,B and C

• Excel calculation needed and appendix needed.