AFIN2050 2021 S2 Assignment

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AFIN 2050 INVESTMENTS S1 2022
Weighting = 20% of Final Assessment


This File contains:

1. Questions and Marking Criteria For Group Report
2. Questions and Marking Criteria For Individual Report
3. Assessment Criteria and Check List
4. Instruction on how to download data from Yahoo Finance








AFIN2050 2021 S2 Assignment

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Group Analysis Report (max 2 pages)

For your group report, please complete the following tasks (50 marks; weight: 50%):

1. Identify 3-4 stocks that experienced a significant loss and then recovered well from the first outbreak
of COVID-19 pandemic in early 2020, as well as 3-4 stocks that not recovered well from the pandemic
impact. All the stocks must be Australian listed stocks (traded on the Australian Securities Exchange).
Provide a brief explanation of why the selected stocks performed the way they did. (5 marks)

- 3 marks for stock selection, 2 marks for a brief explanation.
-note: you can narrow down your observation period for recovery to 24/02/2020 to 04/09/2020 to make
it consistent with the rest of the analysis or a different time period.

2. For the horizon from 24/02/2020 to 04/09/2020 (inclusive), download daily historical price data for the
selected stocks and the ASX200 index (code = ^AXJO) from Yahoo Finance (use the ‘adjusted close’
price). Calculate the betas and standard deviations of the daily returns for the selected stocks (use the
ASX200 as the market proxy and a constant daily risk-free rate of 0.002%; present values in a table)
and use 2-3 sentences to briefly explain the process of finding out betas. (10 marks)

–In your word file, present beta values and standard deviations in a table (5 marks), the equation or
model used for calculation (2 marks), briefly explain the process (3).
-note: to calculate the holding period period, you can use the ‘adjusted close’ price, which already
accounts for share splits and dividend payments. So the return calculated based on this price is the
holding period return.


3. Use CAPM to forecast the average daily expected returns for all selected shares. Assume an expected
daily market return of 0.04% and a daily risk free rate of 0.002%, and calculate the expected daily
returns on your stocks given your constructed betas. Based on the expected returns calculated, answer
the following questions: a. which stock has highest/lowest expected return and explain this by the risk
measures calculated in Q2; b. for the stock with highest expected and the stock lowest expected return,
identify one business/financial risk (e.g., financial leverage, sensitivity of sales) for each stock that
contributes to the amount the systematic risk involved. (10 marks)
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-In your word file, show CAPM equation (1 mark), show expected returns for all shares in a table (no
detailed steps required) (3 marks), and identify the stocks with the highest return and lowest return,
explain why with risk measures (3).Identify business/financial risk factors (3).

4. Using the expected returns calculated in Q3, and weights which vary from 0 to 100% in 5% increments,
construct and graph three investment opportunity sets from the following sets of securities:
a. Two stocks from the ‘recovered well’ category
b. Two stocks from the ‘recovered poorly’ category
c. One stock from each of the ‘recovered well’ and ‘recovered poorly’ category

Please plot out the three investment opportunity sets in one graph set in expected return-standard
deviation plane and identify the efficient frontiers. You need provide a short explanation for how the
efficient frontier is identified (15 marks).

-In your word file, present the graph with three investment opportunity sets (9). Identify and explain
the efficient frontier in 2-3 sentences (6).

5. Find the optimum portfolio from each investment opportunity set (using the formula provided in the
lecture slide/textbook). Which optimuml portfolio generates the best risk/return tradeoff (i.e. find the
optimum portfolio for each a, b, and c and compare)? Why do you think this is the case? (10 marks)

-In your word file, present the optimum portfolios (show weights, expected return and standard
deviations (3 marks) and show the best optimum portfolio (3 marks). Explain why this is the case (4).



AFIN2050 2021 S2 Assignment

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Individual Analysis Report (max 2 pages)

For your individual report, please complete the following tasks (40 marks; weight: 50%):

Allocate one of your 3-4 stocks in each category to each group member such that each group member has
one unique stock from both “recovered well” category and one from the recovered poorly” category. Two
members of the group should not analyze the same stock. For example, if you have well recovered stocks
A, B, C, D and poorly recovered tocks W, X, Y, Z, group member 1 could take stocks A&W, member 2
B&X, member 3 C&Y and member 4 D&Z. Any pair of stocks allocated to each group member should
not be identical to the pair C of stocks used in Q4 of the group report. Answer the following questions on
your own:


1. Follow the same approach and use the same dataset applied in your group report, construct the
investment opportunity set for the two selected stocks. Identify the optimum risky portfolio (X).
Compared with the best optimum risky portfolio (Y) identified in Q5 of Group Report, which
portfolio offers better risk/return tradeoff, portfolio X or portfolio Y? Explain why. (5 marks)

-In your word file, present a graph with one investment opportunity set (1 marks); present the
weights, expected return and standard deviation of optimum risky portfolio (no details of working
steps needed) (2 marks); Explain (3 mark).

2. Combine the optimum risky portfolio X with one additional stock Z (at your own choice) to achieve
more diversification benefits. It can be any stock that is traded in the market except for those used
in the group report. Explain why this stock is selected. Draw a new investment opportunity set by
varying weights in X and Z from 0 to 100% in 5% increments. What is the best Sharpe Ratio that
can be achieved on this investment opportunity set? How does it compare with the Sharpe Ratio of
portfolio X? Explain whether and why adding the stock you have selected is a good investment
decision. (10 marks)

-In your word file, use 1-2 sentences to explain which stock is added (2 mark); present this
investment opportunity set separately or combine it with Q1 (1marks); present the weights,
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expected return and standard deviation of the new optimum risky portfolio, as well as Sharpe ratio
(no details of working steps needed) (3 marks); Explain (4 marks).

3. Assume a client of yours had a bullet loan (inclusive of the principal and interest) due 1 year from
04/09/2020. In order to meet the liability, she wanted to invested in a combination of a risk free
and risky assets, and let it accumulate until the loan maturity. She informed you she would like the
daily standard deviation of returns of her portfolio not to exceed 2%. What is the best investment
strategy that could be taken assuming the three stocks you have picked (two from the group report,
one from your own choice) are the only risky assets that can be invested. (10 marks)

—show key steps to find out the weights in each of the three stocks (6);
---Explain why this is the best investment strategy (4)



4. Compare the optimum risky portfolio identified in Q2 with the ASX200 index by using appropriate
performance measures. What would be your recommendation to your client in Q3 if an index fund
can be invested to track the performance of ASX200? (5 marks)

—show the measure to compare performance (2); compare values (1)
---recommendation (2)


5. For the period between 5/9/2020 and 5/9/2021 (inclusive), use the price data from Yahoo Finance
(use the ‘adjusted close’ price). Calculate the holding period return (HPR) for your selected two
stocks from group report. Compare the actual holding period returns with the forecasted expected
returns calculated based CAPM (daily return needs to be annualized to compare with annual HPR).
Is the actually HPR lower or higher than CAPM forecasted return? What could be the reasons?
Please provide at least 2 reasons. (10 marks)

—In your word file, briefly explain the steps to calculate the HPR (5); identify which return is
higher and explain why (5).
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Assessment Criteria and Checklist
1. Each group has a minimum of 3 and a maximum of 4 members. All group members are equally
responsible for the entire submitted assignment. Please register your group via iLearn by 7 April at
11:59pm. Students who do not register into a group will be randomly allocated.

2. Group Analysis Report Submission:
a. Group analysis report is due Sunday, May 8th, 2022 11:59pm. Each group should
submit an excel file with their data and workings, as well as a word file for their
answers. The excel file is to be submitted via iLearn and word/pdf file via Turnitin.
Only one student from the group needs to upload the files on behalf of the whole
group.
b. Word report must be text recognizable. Reports that are not text recognizable and
cannot be scanned by Turnitin will not be marked
c. The report has to be structured by using headings and subheadings. Do not repeat the
question text.
d. Marks are allocated based on answers provided in Word document. Solutions
presented in Excel but not in Word document will receive zero mark. Solutions
presented in Word document but are not supported by calculations in Excel will receive
zero mark.
e. Groups that do not submit the group analysis report will receive zero marks for the
whole assignment that is 20% of the total unit marks.
f. No extensions will be granted. There will be a deduction of 10% of the total available
marks made from the total awarded mark for each 24 hour period or part thereof that
the submission is late (for example, 25 hours late in submission - 20% penalty). This
penalty does not apply for cases in which an application for special consideration is
made and approved. No submission will be accepted after solutions have been posted.
g. List all the references you have used and refer to them in the text using Harvard
reference style.
h. Maximum number of pages for the Word report is 2 pages. Reports that are not proof-
read will be marked down. Grammar and sentence structure are important.
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3. Individual Analysis Report submission:
a. Your individual analysis report is due Sunday, May 8th, 2022 11:59pm. It is
composed of a written Word document (report) that answers the individual questions.
The word report is submitted through Turnitin. An excel file with data and workings
also need to be submitted. Each student needs to upload their own files.
b. Marks are allocated based on answers provided in Word document.
c. Word report must be text recognizable. Reports that are not text recognizable and
cannot be scanned by Turnitin will not be marked.
d. The report has to be structured by using headings and subheadings. Do not repeat the
question text.
e. List all the references you have used and refer to them in the text using Harvard
reference style.
f. Each student within the group should analyze different securities to each other in their
individual report.
g. Student who does not submit the individual report will receive zero marks for the
whole assignment, that is 20% of the total unit marks.

4. File Name and Formatting:
a. The representative student should submit the group report with the following filename:
group number_ group report.
b. Students should submit their individual report with the following filename: group
number_student id_last name_individual report.
c. 12 point font size and 1.0 or 1.5 line spacing




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You may download historical data from: https://au.finance.yahoo.com/