You are considering investing in Australian shares and decide to investigate the shares of two Australian companies: AMP Limited and CSL Limited.
For this question please note:
- Use the Yahoo! Finance website at http://au.finance.yahoo.com/ for data.
- The monthly holding period return is the percentage return (%) you would receive if you bought an asset on the first day of the month (opening price) and sold it on the last day of the month (closing price). (Use ‘Close’ rather than ‘Adjusted Close’ for the selling price andinclude any dividends).
- This question is to be done on a spreadsheet with the results pasted and submitted in a Word document so please be careful about formatting. After you have completed the calculation copy and paste the spreadsheet into your word document, which will convert it into a table without formulae. Also make sure that you show all your workings – for example, do not simply put down the covariance but show how it was obtained and this does not mean giving the Excel algorithm. Please do not give cell formulae, cell references, etc, as the reader should be able to follow from a table. Also please note using excel formula such as =COVAR() is not acceptable.
a) Find the monthly opening and closing prices for the period 1 July 2017 – 30 June 2018 for AMP Limited (AMP.AX), CSL Limited (CSL.AX) and the Market as proxied by the All Ordinaries index (^AORD). Using the monthly holding period returns (%) for the period1 July 2017 – 30 June 2018 for AMP Limited (AMP.AX), CSL Limited (CSL.AX) and Market (^AORD) calculate thecovarianceandcorrelation coefficientsbetween AMP & CSL, AMP & Market, and CSL & Market. 15 marks
b) Calculate thebetasfor AMP and CSL. 4 marks
c) If the average T bill rate in 2017-2018 was 2.5% pa what would be the expected return of AMP and CSL according to CAPM? 4 marks
d) Calculate thealphasfor AMP and CSL.
(Hint: Use annual holding period returns of 2017-2018 as the actual returns) 3 marks
e) Calculate theSharpe ratiofor AMP and CSL. 4 marks
f) Incorporating all the analysis from part a) to e), explain which share you would invest. (Maximum 350 words)5 marks