Financial Analysis of NAB and BHP Portfolio

This article provides a detailed financial analysis of NAB and BHP portfolio including holding period return, standard deviation, CAPM model, security market line, and estimated return of portfolio.

1
Solution 2:
Answer 2.i:
TimeLine
% 8% 6%
Year 0 1 2 3 4 5
Answer 2.ii:
Formula to calculate the Present value of cash flows
Present value at Time 1
Year Time Cash Flows Interest Rate PVF
0 0 8%
0 1 0 8% 1.000
Present Value at Time 5
Present Value at Time 10
0 0 8%
(Brigham & Michael, 2013)

2
Solution to Question 4:
Answer i:
Formula of Holding Period Return (HPR):
Date Closing Price Question:I Holding Peroid Return
NAB BHP Market NAB BHP Market Portfolio
12/31/2015 26.69 21.91 4154.30
1/31/2016 24.19 22.61 4040.10 -9.37% 3.19% -2.75% -0.57%
2/29/2016 26.24 25.90 4207.30 8.47% 14.55% 4.14% 12.73%
3/31/2016 27.19 31.34 4348.00 3.62% 21.00% 3.34% 15.79%
4/30/2016 27.15 26.97 4448.30 -0.15% -13.94% 2.31% -9.80%
5/31/2016 25.43 28.56 4323.80 -6.34% 5.90% -2.80% 2.23%
6/30/2016 26.54 29.69 4588.50 4.36% 3.96% 6.12% 4.08%
7/31/2016 27.34 30.00 4479.80 3.01% 1.04% -2.37% 1.64%
8/31/2016 27.87 34.65 4480.60 1.94% 15.50% 0.02% 11.43%
9/30/2016 28.00 35.02 4395.60 0.47% 1.07% -1.90% 0.89%
10/31/2016 28.93 37.54 4506.70 3.32% 7.20% 2.53% 6.03%
11/30/2016 29.70 35.78 4695.80 2.66% -4.69% 4.20% -2.48%
0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
HPR
(Monthly Data for NAB, BHP and Market has been exacted from Yahoo Finance and references
for same can be found in reference section)
(References: Yahoo finance: NAB, 2018, Yahoo finance: BHP, 2018 and Yahoo finance:
ASX100, 2018)
Graph for holding period returns

3
01/01/2016
01/02/2016
01/03/2016
01/04/2016
01/05/2016
01/06/2016
01/07/2016
01/08/2016
01/09/2016
01/10/2016
01/11/2016
01/12/2016
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Holding Peroid Returns
NAB
BHP
Market
Time
HPR
Answer ii to iv:
Formula of Annual Holding Period Return (HPR):
Formula of Standard Deviation:
3/31/2016 27.19 31.34 4348.00 3.62% 21.00% 3.34%
4/30/2016 27.15 26.97 4448.30 -0.15% -13.94% 2.31%
5/31/2016 25.43 28.56 4323.80 -6.34% 5.90% -2.80%
6/30/2016 26.54 29.69 4588.50 4.36% 3.96% 6.12%
Answer v:
Graph plot where risk is on X axis and return on Y axis for each of NAB, BHP and Market

4
0 2 4 6 8 10 12
0.00%
200.00%
400.00%
600.00%
800.00%
1000.00%
1200.00%
f(x) = NaN x + NaN
R² = 0 NAB
NAB
Linear (NAB)
Risk
Annual HPR
0 2 4 6 8 10 12
0.00%
200.00%
400.00%
600.00%
800.00%
1000.00%
1200.00%
f(x) = NaN x + NaN
R² = 0 BHP
BHP
Linear (BHP)
Risk
Annual HPR
0 2 4 6 8 10 12
0.00%
200.00%
400.00%
600.00%
800.00%
1000.00%
1200.00%
f(x) = NaN x + NaN
R² = 0 Market
Series1
Linear (Series1)
Risk
Annual HPR

5
Answer to vi:
Formula of CAPM:
(Moles & Kidwekk, 2011)
Application of CAPM Model
NAB BHP
Risk Free Rate 2.95% 2.95%
Market Return 6.50% 6.50%
Beta 1.23 0.9
Expected return when beta = 0 2.95% 2.95%
Expected Return on given beta 7.32% 6.15%
Answer to vii:
0.8 1 1.2 1.4 1.6 1.8 2 2.2
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
f(x) = − 0.0886217765660425 x + 0.225002443482491
R² = 1
NAB
NAB
Linear (NAB)
Risk
Annual HPR

6
0 0.2 0.4 0.6 0.8 1 1.2 1.4
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
NAB Security Market Line
Series2
Linear (Series2)
Linear (Series2)
BEta
Return
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
BHP Security Market Line
Series2
Linear (Series2)
Linear (Series2)
Beta
Return
Answer viii:
Portfolio of NAB (30%) and BHP (70%)
Construction of Portfolio

7
Date Closing Price Question:I Holding Peroid Return
NAB BHP Market NAB BHP Market Portfolio
12/31/2015 26.69 21.91 4154.30
1/31/2016 24.19 22.61 4040.10 -9.37% 3.19% -2.75% -0.57%
2/29/2016 26.24 25.90 4207.30 8.47% 14.55% 4.14% 12.73%
3/31/2016 27.19 31.34 4348.00 3.62% 21.00% 3.34% 15.79%
4/30/2016 27.15 26.97 4448.30 -0.15% -13.94% 2.31% -9.80%
5/31/2016 25.43 28.56 4323.80 -6.34% 5.90% -2.80% 2.23%
6/30/2016 26.54 29.69 4588.50 4.36% 3.96% 6.12% 4.08%
7/31/2016 27.34 30.00 4479.80 3.01% 1.04% -2.37% 1.64%
8/31/2016 27.87 34.65 4480.60 1.94% 15.50% 0.02% 11.43%
9/30/2016 28.00 35.02 4395.60 0.47% 1.07% -1.90% 0.89%
10/31/2016 28.93 37.54 4506.70 3.32% 7.20% 2.53% 6.03%
11/30/2016 29.70 35.78 4695.80 2.66% -4.69% 4.20% -2.48%
0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
HPR
Formula to calculate the estimated return of portfolio:
(Bromwich & Bhimani, 2005)
Expected Return 0
Expected Return 0.9
Answer ix:
According to results gathered above I would like invest in Portfolio as it provides average
return with lower risk.

8
References
Yahoo finance: ASX100. (2018). Historical Data. Retrieved on 8 April 2018, from
https://au.finance.yahoo.com/quote/%5EATOI/history?p=%5EATOI
Brigham, F., & Michael C. (2013). Financial management: Theory & practice. Cengage
Learning.
Bromwich, M. & Bhimani, A., (2005). Management accounting: Pathways to progress. Cima
publishing.
Moles, P. & Kidwekk, D. (2011). Corporate finance. John Wiley &sons.
Yahoo finance: NAB. (2018). Historical Data. Retrieved on 8 April 2018, from
https://au.finance.yahoo.com/quote/NAB.AX/history?p=NAB.AX
Yahoo finance: BHP. (2018). Historical Data. Retrieved on 8 April 2018, from
https://finance.yahoo.com/quote/BHP/history?p=BHP