(a) Having been allocated an assignment company, you must now select another listed company operating in a different business sector. This MUST be approved by the module leader. You are now required to:
(1) Calculate the total shareholder return (TSR) for the shares of both companies for the seven years prior to the date of your allocated company’s Annual Report;
(2) Calculate the mean (average) return for each company for each year over the seven year period;
(3) Calculate the risk, as measured by standard deviation, for each company over the seven year period;
(4) Calculate the correlation coefficient for the returns of the two companies’ shares;
(5) Calculate and plot the risk and return of a two-share portfolio made up of proportions of the two shares changing at 10 per cent intervals:
(6) Comment on your findings.
(b) Using the total shareholder returns (TSR) calculated for your allocated company in part (a) in conjunction with the return predicted by the CAPM, calculate the abnormal returns earned each year by the shares. Comment on your results.
(c) Discuss the difficulties that arise in using Portfolio Theory and the Capital Asset Pricing Model in modern corporate finance, illustrating your answer, where appropriate, with difficulties you have experienced in answering parts (a) and (b) of this assignment.
The assignment must be word-processed and not more than 2,000 words in length. List all the sources of information used in your assignment. Photocopy and include in an appendix any relevant financial data. All books, journals or electronic data systems (including web addresses) used in the preparation of your report must be clearly and appropriately referenced in footnotes using academic referencing. All quotations made directly from books, journals or other information media must be clearly acknowledged by using footnotes and quotation marks. More information below.
Accurate and consistent referencing is essential in all academic work. Whenever you refer to either the work or ideas of someone, or are influenced by another’s work, you must acknowledge this. Similarly if you make a direct quotation from someone’s work this should be referred to accurately.
You are strongly advised to keep detailed records of the sources you use in your research, and to do this at the time that you use them. The Referencing Help page on the Library Gateway web page is a useful tool to help you do this. See below