Investment Analysis with Data

For this assignment, it is assumed that you are working as an investment analyst in the research department of A.P. Investments. You need to write a report summarizing how you finish the tasks asked by the head of the research department of A.P. Investments. Your report should include the details of data analysis for investment with the use of Excel.

Specifically, the head of the research department has provided you with monthly historical data on the stocks of Goodman Property Trust (GMT.NZ), Contact Energy Limited (CEN.NZ), and the NZX 50 index as well as the risk-free rate; and he has asked you to analyze the data for the purpose of investments in the New Zealand stock market. In particular, he wants you to do the following:

(a) He wants you to determine what the average returns and standard deviations of returns per annum based on the historical data are for the two stocks and NZX50 index. He also wants you to use regression analysis to evaluate the market risk of the two stocks, and to give an interpretation of your findings from the regression analysis, particularly the estimated alpha values of the two stocks and their implications on stock price.

(14 marks)

(b) Suppose that you use the three average returns per annum calculated in Part (a) as the estimates of the expected returns for the two stocks and market portfolio respectively. Suppose that the risk-free rate is 0.8% per annum, your boss further wants you to draw a risk-return graph with beta on the x-axis and returns on the y-axis, which shows the Security Market Line, the market portfolio and the two stocks. Determine the fair expected returns for the two stocks according to CAPM and discuss your findings.

(8 marks)

(c) Finally, he wants you to construct a portfolio that invests 50% in GMT stock and 50% in CEN stock, and to estimate beta and expected return for this portfolio.  Comment on your findings on this portfolio and compare them with those for the two individual stocks.

(8 marks)

Note that 5 marks are allocated to writing, which includes grammar and syntax, paragraphing and logical sequencing of arguments.

 

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