Corporate Finance: Time Horizon, Expected Rate of Return, Risk Assessment, and Portfolio Recommendations

This report discusses various aspects of corporate finance such as time horizon, expected rate of return, risk assessment, and portfolio recommendations. It explains the Capital Assets Pricing Model and how it helps in determining the expected return after considering the risk associated with the assets and cost of capital. The report also recommends diversification of the portfolio and explains the importance of market volatility in investment decisions.

Corporate Finance

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
1. Explain the time horizon, measurement intervals, Market Index and risk free rate................3
2. Calculate Annualised Expected Rate of Return and standard deviation of the price of the
stock.............................................................................................................................................4
3. Identify the risk of the client if its portfolio consists of 70% shares of Apple Inc. and 30%
Woolworths group ltd..................................................................................................................5
4. According to the past performance company determine the whether the idea of the client is
good or bad..................................................................................................................................5
5. Recommend the clients portfolio and explain about the market turmoil which was suggested
by Brad Damon............................................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The corporate finance id defined as the subfield of the finance which addresses the different
aspect that how the business organisation deals in the various funding sources, accounting,
capital structuring, and the other investment decisions. The corporate finance is related to the
various aspect of the maximizing shareholder, and value of the various long term and short term
investment within the business organisation. The corporate finance includes the various
considerations which is related to the management of the financial aspect which need to be
considered by the organisation in order to increase their efficiency of the company to manage
their financial resource. The capital financing is responsible for the sourcing capital in the form
of the debt or equity. The company can borrow the funds from the commercial banks in order to
increase the efficiency. This report will include various topic such as explanation of time
horizon, intervals, market index, risk free rate, calculation of expected rate of return, risk for the
clients, past performance of the company and recommendations.
MAIN BODY
1. Explain the time horizon, measurement intervals, Market Index and risk free rate.
In the following there are two companies namely Apple INC and Woolworths Group Ltd.
The data is collected from 01/04/2017 to 31/12/2019 which represents the adjusted price of the
share of the company and the change in the returns. The data is collected on the weekly basis and
it also constitute of the Market Index of during the same period. The data is collected to
determine the beta of the share which defines the fluctuation in the price of share in comparison
with the market index. Beta is calculated to determine if the market will change that what is the
probability that the it there will be change in the price of the share (Al-ahdal and et.al., (2020).
The Capital Assets Pricing Model describe the relationship between expected return from
assets, systematic risk and particularly stocks. CAPM model is widely used model which helps in
finance in determining the price of the securities and helps in determining the expected return
after considering the risk associated with the assets and cost of capital.
Capital Asset Pricing Model is Calculated by using the following formula,
ERi = Rf + Beta (ERm – Rf)
Where:
ERi = Expected rate of return

ERm – Rf = Market Risk Premium
Rf = Risk free rate
According to this method the value so derived is helpful for the investors in determining the
risk and time value of money associated with the price of the share. Beta determine the
additional risk associated with the securities. A beta higher than 1 states that the risk associated
with the security is higher. And on the other hand, if the beta is lesser than 1 means that the risk
is lower of the security as it will move as compared with the market index. A stock with beta of 1
means that the prices of the stock will move same as of the index of the market (Ali, Danish, &
Asrar‐ul‐Haq (2020).
Potentially speculative beta is the percentage of how much VCs add to a market-seeming
portfolio. Assuming a stock is more dangerous than the market, its beta will be more noteworthy
than its beta. If a stock's beta is below a certain value, the recipe accepts it will reduce the
portfolio gamble.
The normal return of the CAPM formula is used to limit the normal profits and capital
enthusiasm of the stock over the normal holding time frame. Assuming the finite value of these
future earnings is equivalent to $100, the CAPM formula shows that the stock is indeed
respected compared to the risk.
2. Calculate Annualised Expected Rate of Return and standard deviation of the price of the stock.
Value are calculated in the excel attached.
Normal return is the expected gain or misfortune of a financial backer on a business with a
known verifiable rate of return (RoR). It is determined by increasing the likelihood of their
occurrence with possible outcomes, which are then added up.
Normal returns are usually based on real information, so the future is not guaranteed; it
does in fact often set reasonable assumptions anyway. Along these lines, the normal rate of
return can be thought of as a weighted normal of the true rate of return (Baah, Jin & Tang,
(2020).
Expected return calculations are an important part of business tasks and monetary
assumptions, keep in mind Current Portfolio Assumptions (MPT) or Black-Scholes' well-known
model of choice valuation models. It is a device used to determine whether a business has
positive or negative typical net results. Estimates are usually based on verifiable information, so
there is no guarantee of future results, however, it can set reasonable assumptions.

Normal return and standard deviation are two factual measures that can be used to break
down a portfolio. The normal return of a portfolio is the expected measure of the profit that the
portfolio is likely to make, making it the average (normal) of the conceivable dispersion of bring
back the portfolio. The standard deviation of a portfolio again measures the sum of the deviations
of profit from its mean, making it an intermediary for portfolio gambling.
3. Identify the risk of the client if its portfolio consists of 70% shares of Apple Inc. and 30%
Woolworths group ltd.
The beta of Apple Inc. is 1.07 which means that the company share will move
approximately similar to the market index and the beta of the Woolworths plc’s beta 0.01 which
means that the market index does not influence much the prices of the share. This suggests the
market does not influence much the share prices of Woolworths plc. In the following case the
client holders approximately 70% of the portfolio with the Apple Inc. and remaining 30% is
comprised of Woolworths plc. Thus the overall risk of the portfolio is moderate as the beta of
both the share does not fluctuate much as compared to the market index (Beck, Frost & Jones
(2018).
4. According to the past performance company determine the whether the idea of the client is
good or bad.
Modern portfolio theory is about the investment made and allows to know the assets where
the amount is invested which helps in determining the expected return that the firm will earn by
investing in the companies. With the help of this theory is helps in determining the risk taking
capacity of an investor whether an investor is a moderate risk taker, lesser risk taker and highly
risk taker.
In order to diversify the risk associated with the portfolio it needs to add the stocks to the
portfolio which are less risky and will provide returns are safer in terms of fluctuations in the
prices. The idea of the client of short selling the will reduce the risk of the client and increase the
valuation of the portfolio because it will provide returns to the client which is 30% of the amount
of the stocks sold.
If the client will take and provide loans on the risk free return, then the client will be able to
earn more because the return derived from the portfolio is 30% which is more than the risk free
return associated in the market (Dal Maso and et.al., (2018).

5. Recommend the clients portfolio and explain about the market turmoil which was suggested
by Brad Damon.
Market volatility is associated with the changes in the market index of a company which is
basically influenced by various external environmental factors. It is calculated in terms of the
specific period in which the situation occurs, it affects the returns and rewards associated with
the share and index of the country. It is comprising of the fact that the investor has equal chance
of losing the money and earning more money in the market. The associated is quite clear from
the market that the risk with the market is always there irrespective of the fact that it may provide
returns which are provided in the market in term of debt financing or any other source
(Dhamotharan, Selvam & Thanikachalam (2019).
In the following case the investor can choose to have funds according to the fact that the
investor wants to have a portfolio which is less volatile as compared with the market and is also
less risky. According to the specification provided the investor can exercise the stocks of
Woolworths whose beta is 0.01 which is very low and annual return as well the standard
deviation of the stock of the company is also low. Thus the portfolio should comprise more of
the stocks of Woolworths and less of the Apple Inc. as the share prices of the company fluctuates
much more and the returns of the company are also more than 100% but the risk associated with
the share is also more as compared to Woolworths Plc. Thus the portfolio should comprise of the
share of Woolworths Plc share more than the shares of Apple Inc. (Huang, 2022).
CONCLUSION
From the above report it has been concluded that corporate finance is the broader term
which is associated with the financial aspect of the business organisation. It is very important for
the companies to analyse the different aspect which can impact in the financial investing for the
company. The corporate finance is related to the investment decision which ned to be planned for
the business organisation for effective and efficient working and investment.

REFERENCES
Books and Journals
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satisfaction. Corporate Social Responsibility and Environmental Management, 27(1),
166-177.
Baah, C., Jin, Z., & Tang, L. (2020). Organizational and regulatory stakeholder pressures friends
or foes to green logistics practices and financial performance: investigating corporate
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Beck, C., Frost, G., & Jones, S. (2018). CSR disclosure and financial performance revisited: A
cross-country analysis. Australian Journal of Management, 43(4), 517-537.
Dal Maso, L. and et.al., (2018). The moderating role of stakeholder management and societal
characteristics in the relationship between corporate environmental and financial
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Dhamotharan, D., Selvam, M., & Thanikachalam, V. (2019). Correlation between Corporate
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Liao, Z. (2018). Corporate culture, environmental innovation and financial
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Shabbir, M.S. and Wisdom, O., (2020). The relationship between corporate social responsibility,
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