Investment Finance Part A

Contents Page

Question 1: HPR, AAR & GAR                                                        4                                                        

Question 2: Daily Value at Risk                                                8

Question 3: Portfolio Selection                                                        9

Question 4: The Capital Asset Pricing Model                                        11

Question 5: Single Index Portfolio Risk & Return                                13

Telstra (TLS)

Question 1: HPR, AAR & GAR – Data source; DatAnalysis

1. Monthly HPRs

• Formula - source: Principles of Investment

[pic 1]

• Excel formula

= (5.25 – 5.63)/5.63  …

• Results

[pic 2]

• Line graph

[pic 3]

1. Variance - “Expected value of the square deviation from the mean” (Bodie, Drew, Basu, Kane & Marcus, 2017).

• Formula - source: Principles of Investment

[pic 4]

• Excel formula

=VAR.S(C4:C26)

Standard Deviation

Formula - source: Principles of Investment

[pic 5]

• Excel formula

=STDEV.S(C4:C26)

• Results

[pic 6]

Minimum Return

• Excel formula

=MIN(C4:C26)

Maximum Return

• Excel formula

=MAX(C4:C26)

• Results

[pic 7] 

1. Arithmetic Average

• Formula - “The sum of returns in each period divided by the number of periods” (Bodie, Drew, Basu, Kane & Marcus, 2017).

• Excel formula

=SUM(C4:C26)/COUNT(C4:C26)

Geometric Average – effective rate per period of the holding return

• Excel formula

=(PRODUCT(D4:D26)^(1/23))-1

• Results

[pic 8]

1. Number of TLS shares purchased:-

• Formula - Funds available after brokerage (49970) / TLS share price (5.63) (at the beginning of the period.

1. Gain on the disposal of 8875.666075 TLS shares (based on the last market price of the share).

• Formula – no. of shares (8875.666075) * last market price (3.63)

• Results

[pic 9]

Telstra (TLS) + National Australia Bank (NAB)

Question 2: Daily Value at Risk - Data source; Yahoo Finance