Finance Mini Case Study Assessment 2022

Running head: FINANCE
Finance
Student Name:
Student Number:
Authors Note:

FINANCE
Table of Contents
Introduction:...............................................................................................................................2
Mini Case:..................................................................................................................................2
1. Calculating the expected return and standard deviation of the:.............................................2
2. Detecting the reward to risk ratio by evaluating the standard deviation as a measure of risk:
....................................................................................................................................................3
3. Detecting the expected rate of return for the fund based on Capital Asset Pricing Model:...3
Questions:...................................................................................................................................4
A. Calculating the current value of the stock, while detecting the value of the stock in 5 years:
....................................................................................................................................................4
B. Calculating the bond value, while detecting the effective annual yield on the bond:...........5
C. Providing relevant discussion on the IRR, Payback period and NPV method while
detecting which is the best one:.................................................................................................5
D. Providing information regarding the usefulness and details of WACC:...............................7
E. Providing explanation on the differences between stock and Bond, while understanding the
relationship between bond and interest rates:............................................................................8
Conclusion:..............................................................................................................................10
References and Bibliography:..................................................................................................11

FINANCE
Introduction:
The overall assessment aims in evaluating the mini case study, stock price
performance and bond price. The adequate evaluation has been conducted on the certain
calculations, which can help in determining the appropriate level of expected return and
standard deviation. Further analysis has been conducted for understanding the bond price,
share price value and reward to risk ratio of the company. The evaluation has also stated that
the overall information of the mini case is mainly utilized for deriving the appropriate levels
of share price and the CAPM returns that needs to be provided by the organization. the
assessment also evaluates the information regarding the significance of the investment
appraisal techniques that can be used by the company for evaluating their investment scope.
Further evaluation is conducted on the WACC, which is used by the investor for detecting the
actual return that needs to be provided by the company over the next financial year. Lastly,
the discussion on the difference between the stock and bond is provided.
Mini Case:
1. Calculating the expected return and standard deviation of the:
Probability Return E
10.000% 50.000% 5.000%
50.000% 35.000% 17.500%
35.000% 5.000% 1.750%
5.000% -100.000% -5.000%
(Er) Expected return 19.250%
Probability Return E R-Er (P(R-Er))^2
10.000% 50.000% 5.000% 30.750% 0.946%
50.000% 35.000% 17.500% 15.750% 1.240%
35.000% 5.000% 1.750% -14.250% 0.711%
5.000% -100.000% -5.000% -119.250% 7.110%

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Variance value 10.007%
(SD) Standard deviation value 31.634%
The above table provides information regarding the expect return and the standard
deviation value of the returns of a particular stock. The calculation has mainly indicated that
the overall expected return is at 19.250%, while the variance is at 10.007% and standard
deviation is at 31.634%.
2. Detecting the reward to risk ratio by evaluating the standard deviation as a measure
of risk:
Particulars Value
(Er) Expected return 19.2500%
(SD) Standard deviation
value 31.6336%
(i) Interest rate 4.5000%
Risk reward ratio (Er-i)/SD 0.4663
The analysis of the risk to reward ratio has been detected to be at the levels of 0.4663,
where both the expected return, standard deviation value and interest rate has been used for
determining the risk reward ratio of the investment. Macaulay (2017) stated that investors
after determining the risk to reward ratio are able to determine the appropriate level of
investments that can increase their return generation capability from investment.
3. Detecting the expected rate of return for the fund based on Capital Asset Pricing
Model:
Particulars Value
Rf 4.500%
Mf 5.500%
Beta 3.550
CAPM (Rf + Mf x Beta) 24.025%