FINC2011 Corporate Finance I- Assignment Problem

Assignment Help Corporate Finance

Reference no: EM132394594 , Length: word count : 2800

FINC2011 Corporate Finance I, The University of Sydney, Australia

Assignment

You are starting an internship at a large investment fund called “WhiteRock”. Your manager has tasked you to write a report for a client that compares the potential return and risk profiles of different investment opportunities. Given the uncertainty with current financial
markets, this client is considering investing only for the medium term (approximately 5 years).

The investment fund is thinking whether a well-diversified or limited diversification strategy would be preferable for this client. You expect that extra returns could be generated as compensation for bearing more risk.

Required:

1. Select two stocks and an appropriate market index from the Australian Securities Exchange (ASX), London Stock Exchange (LSE) or New York Stock Exchange (NYSE). The two stocks will form the limited diversification portfolio and the market index will be the diversified portfolio. Justify why these two stocks are appropriate choices to combine together and your choice of a relevant market index.

2. Estimate and compare the returns and standard deviation of each stock and the market index over an appropriate time period. Justify your data choices.

3. Calculate the beta of each of the two stocks. Justify your data choices.

4. Calculate the expected return of each stock using the Capital Asset Pricing Model (CAPM). Justify your data choices.

5. Construct a series of limited diversification portfolios with the two chosen stocks by varying the weights of each at 2.5% increments – starting at 100% invested in Stock X and then increasing the weight of Stock Y until it reaches 100%. Calculate the expected return and beta of each portfolio. The results should be presented on an appropriate graph.

6. Provide a final recommendation to this client on the most appropriate choice(s) that they should invest in and how it could be implemented most optimally.

Justifications should be made with reference to appropriate academic literature.

Assessment Criteria:

1. Conforming with instructions (e.g. word length, font, other instructions)

2. Presentation, communication & style (written)

3. Clarity of expression (incl. accuracy, spelling, grammar, punctuation)

4. Referencing

5. Use of literature/knowledge of theory

6. Data/information gathering/processing

7. Conclusions

8. Analysis

9. Problem solving

10. Reflection/evaluation

Formatting and Presentation:

1. The report should be no more than 12 pages with 1.5 line spacing and size 12 Arial or Calibri Font. Please number the pages of your report. Marks will be reduced by 10% for each page you exceed the page limit. Hence, your mark will be reduced to zero if the report exceeds 22 pages. You will be penalised for inappropriate formatting.

2. Ensure you use proper academic referencing in supporting the ideas and discussion within your report. All reports must include a list of references in academic form using the APA method.

3. Pay particular attention to presentation. A component of your mark will be based on presentation. Avoid overdoing formatting and ensure that the report is very clear, logical and professional. Pay attention to grammar. Clear and logical presentation is a major challenge in report preparation.

4. Preparing a concise report poses a major challenge. Brevity and conciseness are key ingredients of a highly successful report. Every part of the report should somehow add to the end result; otherwise, it is superfluous and distracting.

5. The report must be submitted as a .pdf document. Excel spreadsheets must be submitted as a .xlsx workbook. You must submit two files electronically via the link on Canvas.

The page limit for the report is 12 pages.

What is included in the 12 page limit?

Executive summary

Report body

Tables

Diagrams

What is excluded from the 12 page limit?

Title page

Table of contents

Reference list

Topic Six: Capital Budgeting II Further Issues

Topic Seven: Risk and Return

Topic Eight: Capital Asset Pricing Model

Topic Nine: Company Cost of Capital

Topic Ten: Equity Capital Markets

Reference no: EM132394594

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