Financial Analysis and Risk Management

The provided document is an academic assignment that focuses on analyzing the financial performance of AUS AND NZ. BANKING GP. The assignment aims to understand the company's market price, shareholder returns, and profitability, as well as its ability to perform well and garner good revenue. It references various studies and research papers on risk management, financial modeling, and market analysis, providing a comprehensive understanding of the subject.

Finance

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Information of shortest maturity notes in Australia.................................................................1
2. Computation of monthly return on shares and price indexes of company and market...........1
3. Computation of expected return of each of the shares............................................................1
4. Calculation of beta for shares..................................................................................................1
5. Applying CAPM model and calculating fair return of shares.................................................1
6. Draw security market line of ASX market..............................................................................1
7. Plot shares on graph of security market line............................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................3

INTRODUCTION
Finance is required in every business so that it may accomplish activities in effective
manner. Present report deals with preparation of portfolio of investment consisting of shares.
Wesfarmers Ltd and six other companies' portfolio of investment is formed in this report
(Baulkaran, Jain and Sunderman, 2018).
1. Information of shortest maturity notes in Australia
The risk free rate of the shortest maturity notes in Australia is 9.1 % on treasury notes of
less than five years (Brock, 2018).
2. Computation of monthly return on shares and price indexes of company and market
Market Return (RM) of Wesfarmers is 20.85, CBA is 499.9, Westpac is 495.7, BHP LTD
is -5.69945, Rio tinto is -0.49793, NAB is 623.1, AUS. AND NZ BANKLING GP is 1070.5
(Bouamara, N and et.al, 2018).
3. Computation of expected return of each of the shares
Expected return is 11.75 of Wesfarmers, Return for CBA is 490.8, Return for Westpac is
486.6, Return for BHP LTD is -14.799448, Return for Rio tinto is -9.597929, for NAB is 614,
for AUS. AND NZ BANKLING GP is 1061.4(Campbell and Kassa, 2018).
4. Calculation of beta for shares
The beta is calculated as -0.34457 for Wesfarmers. For CBA, Westpac, BHP LTD, Rio
tinto, NAB and AUS. AND NZ BANKLING GP are 0.9949964, 1.366045, -0.1977687, -
0.4288712, 1.317257007, 1.343156 respectively (French, 2018).
5. Applying CAPM model and calculating fair return of shares
CAPM = RF + Beta (RM - RF)
Where RF is Risk free rate, RM is Market Return
= 9.1+-0.34457 (11.75)
= 102.8763
For Westpac is 5092.777497 (Huynh, Nguyen and Duong, 2018,)
For CBA is 4954.624233 (McNevin and Nix, 2018)
For BHP LTD is -131.74811 (Phadkantha, Yamaka and Tansuchat, 2018)
For Rio tinto is -83.224879 (Sherwood and Pollard, 2018)
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For NAB is 6396.1958 (Thamprasert, Pastpipatkul and Yamaka, 2018)
For AUS. AND NZ BANKLING GP is 11084.36578
6. Draw security market line of ASX market
Securities
Rate of
Return Beta CAPM
Risk free 9.1 -0.34457 9.1
Market 20.85 1 20.85
Stock 11.75 9.1
COMMONWEALTH BK.OF AUS
Securities
Rate of
Return Beta CAPM
Risk free 9.1 0.994996 9.1
Market 499.9 1 499.9
Stock 490.98 9.1
2

WESTPAC BANKING
Securities
Rate of
Return Beta CAPM
Risk free 9.1 1.366045 9.1
Market 495.7 1 495.7
Stock 486.6 9.1
3

BHP Ltd
Securities
Rate of
Return Beta CAPM
Risk free 9.1
-
0.19777 9.1
Market -5.66945 1
-
5.66945
Stock -14.7994 9.1
4

Rio tinto
Securities
Rate of
Return Beta CAPM
Risk free 9.1
-
0.42887 9.1
Market -0.49793 1
-
0.49793
Stock -9.59793 9.1
NATIONAL AUS.BANK
Securities
Rate of
Return Beta CAPM
Risk free 9.1 1.317257 9.1
Market 623.1 1 623.1
Stock 614 9.1
5

AUS.AND NZ.BANKING GP.
Securities
Rate of
Return Beta CAPM
Risk free 9.1 1.343156 9.1
Market 1070.5 1 1070.5
Stock 1061.4 9.1
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7. Plot shares on graph of security market line
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8

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CONCLUSION
Hereby it can be concluded that market price of shares initiate return for shareholders and
as such, company is able to perform well and garners good revenue. The portfolio of Wesfarmers
and other companies listed on Australian Stock Exchange help to know regarding risk or profit
available to shareholders and as such, they seek profitability of companies so that higher
dividends may be paid by organisations. It can be analysed that AUS AND NZ. BANKING GP.
has high profitability as monthly price of shares are good as compared to other organisations.
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REFERENCES
Books and Journals
Barroso, P. and Maio, P. F., 2018. Managing the Risk of the'Betting-Against-Beta'Anomaly:
Does It Pay to Bet Against Beta?.
Baulkaran, V., Jain, P. and Sunderman, M., 2018. Housing “Beta”: Common Risk Factor in
Returns of Stocks. The Journal of Real Estate Finance and Economics, pp.1-19.
Bouamara, N., Boudt, K., Peeters, B. and Thewissen, J., 2018. The Alpha and Beta of Equity
Hedge UCITS Funds: Implications for Momentum Investing. In Factor Investing (pp. 415-
446).
Brock, W. A., 2018. Nonlinearity and complex dynamics in economics and finance. In The
economy as an evolving complex system (pp. 77-97). CRC Press.
Campbell, T. C. and Kassa, H., 2018. Betting Against Beta Under Incomplete Information.
French, J., 2018. A practitioner’s guide to the CAPM: an empirical study. In Global Tensions in
Financial Markets (pp. 1-18). Emerald Publishing Limited.
Huynh, T.L.D., Nguyen, S. P. and Duong, D., 2018, January. Pricing Assets with Higher Co-
moments and Value-at-Risk by Quantile Regression Approach: Evidence from Vietnam
Stock Market. In International Econometric Conference of Vietnam(pp. 953-986). Springer,
Cham.
McNevin, B. D. and Nix, J., 2018. The beta heuristic from a time/frequency perspective: A
wavelet analysis of the market risk of sectors. Economic Modelling. 68. pp.570-585.
Phadkantha, R., Yamaka, W. and Tansuchat, R., 2018, January. Analysis of Risk, Rate of Return
and Dependency of REITs in ASIA with Capital Asset Pricing Model. In International
Conference of the Thailand Econometrics Society (pp. 536-548). Springer, Cham.
Sherwood, M. W. and Pollard, J. L., 2018. The risk-adjusted return potential of integrating ESG
strategies into emerging market equities. Journal of Sustainable Finance & Investment. 8(1).
pp.26-44.
Thamprasert, K., Pastpipatkul, P. and Yamaka, W., 2018, January. Interval-Valued Estimation
for the Five Largest Market Capitalization Stocks in the Stock Exchange of Thailand by
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Markov-Switching CAPM. In International Econometric Conference of Vietnam (pp. 916-
925). Springer, Cham.
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