Financial Modelling - Assignment

Running head: FINANCIAL MODELLING
Financial Modelling
Name of the Student:
Name of the University:
Author’s Note:

FINANCIAL MODELLING1
Abstract
The aim of the assignment is to well cover the financial modelling process that would be well
covered from the investment perspective. The companies that have been selected for the purpose
of analysis is large cap Australian Companies which are actively traded in the Australian Market
and is having a sound liquidity. The trend period that has been specifically covered for the
purpose of analysis is from January 2010 to June 2016. The Analysis of the returns would be
well done with the help of the Capital Asset Pricing Model whereby the expected return for the
stocks will be well calculated with the help of the model developed. The descriptive statistics or
analysis on other hand would be well covered with the help of the STAT Software in which
output would be well used for the purpose of assessing the overall model and the output that has
been generated for the model analyzed.

FINANCIAL MODELLING2
Table of Contents
Introduction......................................................................................................................................3
Discussion and Analysis..................................................................................................................3
Capital Asset Pricing Model........................................................................................................3
Regression Analysis.....................................................................................................................5
Descriptive Statistics...................................................................................................................7
Conclusion and Recommendations..................................................................................................7
References........................................................................................................................................8
Appendix..........................................................................................................................................9
1) STATA Output........................................................................................................................9

FINANCIAL MODELLING3
Introduction
The financial modelling has been well carried on with the help of the portfolio
perspective in which key Australian Stocks were selected in which the expected returns for the
stocks has been well analyzed based on the Capital Asset pricing Model. The returns generated
by the model was assessed on different descriptive statistical tools that were well used for the
purpose of analysis which includes assessing the beta value, mean, standard deviation, Alpha, R-
squared Test, which were well analyzed with the help of excel as a key software. On the other
hand, the STATA Software was well used for the purpose of analyzing the overall model with
the help of Unit Root Test, F Test and Diagnostic Test.
Discussion and Analysis
Capital Asset Pricing Model
The CAPM Model has been well used for the purpose of analyzing the expected returns
that have been generated by each of the stock analyzed (Gustafsson and Gustavsson 2019). The
key formula that has been applied for the purpose of calculating the returns generated by the
stock has been as follows:
Expected Return E(r): Risk Free Rate (Rf) + Beta*(Market Return-Risk Free Rate).
The application of the model would be well applied with the help of the above given data
whereby the risk free data has been taken on a monthly basis. The beta of the stocks has been
well calculated by regressing the returns generated for the stocks with the help of index data. The
beta for each of the stocks has been calculated in particular in order to assess the sensitivity of