Tasks for Case Study 1
a) Using the data above, calculate:
(1) the historical monthly rates of return for the market index only (monthly rates of return for
the companies are given); and
(2) the historical average rate of return and standard deviation of returns for:
i) your case company;
ii) the reference company;
iii) the market index; and
iv) an equally weighted portfolio of your case company and the reference company.
b) Calculate the expected returns and portfolio beta as follows:
(1) Use CAPM to estimate the expected return for the shares of: 1) your case company; and 2)
the reference company as at 17 May 2019. To do this, use the yield to maturity on that date of a
10-year Australian Government bond as a proxy for the risk-free rate, assume the market risk
premium is 6.5% and use your chosen case company’s current beta (see the unit learning
resources and web links for example data sources). Assume that the reference company has a
negative beta of -0.30.
(2) Using the data from part b(1), calculate the portfolio expected return and beta, again
assuming equal weights for your case company and the reference company.
c) Drawing on expectations from theory and incorporating the overall context of your chosen
company, discuss the risk and return measures you have calculated. (12 marks)
Note: The remaining five (5) marks are allocated to presentation and written expression of the
analysis (see the rubric below)