Aspects of Corporate Finance

FIN510Aspects of Corporate Finance
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Part 1: Average Return
Formula to calculate the average return:
Returnt = Pt −Pt−1
Pt−1
×100 ,
Where, Pt = Current year share price and Pt-1= equals to previous period share price
Monthly return of all the shares of given five companies and market index ASX200 has been
calculated in excel and same has been presented below:
Date ASX200 AMP.AX ($A) ANZ.AX ($A) CBA.AX ($A) NAB.AX($A) QAN.AX ($A)
Portfolio
(equal
weight)
Jan-15
Feb-15 -0.63 -3.88 3.68 3.82 1.71 7.96 2.66
Mar-15 -1.72 2.07 -7.23 -4.85 -4.62 8.65 -1.19
Apr-15 -0.22 3.42 -2.35 -4.25 -5.33 3.83 -0.94
May-15 -5.51 -9.61 -0.39 0.05 -0.05 -10.23 -4.05
Jun-15 4.40 9.80 1.49 2.85 4.38 18.67 7.44
Jul-15 -8.64 -9.98 -14.53 -12.32 -10.35 -10.40 -11.52
Aug-15 -3.56 -6.55 -3.04 -2.09 -3.82 10.71 -0.96
Sep-15 4.34 5.54 0.48 5.51 0.57 -0.29 2.36
Oct-15 -1.39 1.40 -0.22 3.52 -2.52 -7.85 -1.13
Nov-15 2.50 0.34 6.68 7.68 6.41 12.36 6.69
Dec-15 -5.48 -7.89 -13.43 -8.02 -8.41 -5.13 -8.58
Jan-16 -2.49 -0.93 -7.36 -10.84 -9.36 -0.52 -5.80
Feb-16 4.14 8.83 4.73 9.74 8.47 5.44 7.44
Mar-16 3.33 4.30 3.45 -1.37 3.62 -20.88 -2.18
Apr-16 2.41 -4.08 4.99 4.79 -0.15 -4.35 0.24
May-16 -2.70 -8.51 -2.23 -3.95 -3.03 -8.44 -5.23
Jun-16 6.28 12.60 7.13 4.01 4.36 12.06 8.03
Jul-16 -2.32 -9.47 4.10 -7.16 3.01 2.53 -1.40
Aug-16 0.05 3.04 2.71 3.86 1.94 -3.70 1.57
Sep-16 -2.17 -13.45 0.80 1.37 0.47 0.14 -2.13
Oct-16 2.31 2.84 2.01 7.17 3.32 7.84 4.64
Nov-16 4.14 7.23 10.19 4.78 6.49 0.91 5.92
Dec-16 -0.79 -0.79 -3.71 -0.91 2.12 2.40 -0.18
Jan-17 1.62 -2.40 5.50 0.81 5.47 9.97 3.87
Feb-17 2.67 9.16 2.98 6.83 4.22 3.73 5.38
Mar-17 1.01 3.47 2.95 1.73 1.98 11.07 4.24
Apr-17 -3.37 -5.78 -14.50 -8.87 -11.41 18.16 -4.48
May-17 -0.05 2.77 5.28 3.97 1.31 14.17 5.50
Jun-17 -0.02 3.85 3.17 1.11 1.22 -6.99 0.47
Jul-17 -0.11 -5.38 -0.78 -9.47 0.83 7.52 -1.45
Aug-17 -0.58 -2.53 0.68 2.17 4.30 1.92 1.31
Sep-17 4.00 2.90 1.08 3.16 3.68 6.81 3.53
Oct-17 1.03 2.82 -4.88 2.32 -9.40 -7.80 -3.39
Nov-17 1.59 1.57 3.72 1.15 3.16 -11.11 -0.30
Dec-17 -0.45 1.16 -0.56 -1.83 -1.49 4.56 0.37
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Part 1 (A): Average return of all five shares and given index ASX200 with comparison
Particulars ASX200 AMP.AX ($A) ANZ.AX ($A) CBA.AX ($A) NAB.AX($A) QAN.AX ($A)
Mean 0.104 -0.061 0.074 0.184 0.089 2.107
In order to calculate the average return through using the monthly return, there is need to
use excel formula known as “Average” and it will provide value which is equivalent to the mean
or average return of all the monthly returns of the shares. Average return represents percentage
of total return earned when investor invest in the particular share for the defined period and make
out return on monthly basis (Reilly and Brown, 2011).
On comparison of average return of each share with the market index ASX200, it has
been found that AMP Limited has failed to provide keep the expectation of shareholders as it
provide negative 0.061% return but the same market in which company was listed was provided
return of 0.1045. Similarly ANZ Bank and NAB Bank has provided average return of 0.074%
and 0.089% respectively during the same period but still does not keep up the market expectation
as their average return is slightly lower than the market return of 0.104%. Commonwealth Bank
and Qantas Airways have provided average return of 0.184% and 2.107% as compared to
average return 0.104% of market index ASX200. It means both Commonwealth Bank and
Qantas Airways has made decisions that has helped to keep up their share price over this period
of time.
Part1 (B): Average return of the portfolio comprising of 20% of each of five shares
Average of return of portfolio can be derived though two methods and both methods will
provide same answer.
 Method 1: Sum of weighted average return of each of the shares
 Method 2: Sum of weighted monthly return of each share and calculation of their average
In order to calculate the average return of portfolio comprising equal weights of each
share has been computed through using second method. There are 5 shares and each as equal
weight in portfolio which means each share will have 20% or 0.20 weights under portfolio. It can
be understood by average monthly return of at Feb 15:
Monthly return of portfolio at Feb 15=
(0.20*-3.88)+ (0.20*3.68) + (0.20*3.82) + (0.20*1.71) + (0.20*7.96) = 2.66%
In this way monthly return of will be calculated for the whole period and average
portfolio return is calculated through using excel formula. The average return of portfolio is
0.479 % (Schlichting, 2013).
Part 2: Volatility
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