Share Price, Average Return and Risk Analysis

This document provides an analysis of share price, average return, and risk for a financial company. It includes tables, graphs, and statistics for different time periods. The document also discusses the concept of standard deviation and risk premium.

Running head: SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
Share Price, Average Return and Risk Analysis
Name of the Student:
Name of the University:
Author Note:

SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS 1
Table of Contents
Section B....................................................................................................................................2
Answer 1................................................................................................................................2
Answer 2................................................................................................................................2
Answer 3................................................................................................................................2
Answer 4................................................................................................................................4
Answer 5................................................................................................................................6
Answer 6................................................................................................................................7
Section C....................................................................................................................................7
Answer 1................................................................................................................................7
Answer 2................................................................................................................................8
Answer 3................................................................................................................................8
Answer 4................................................................................................................................9
Answer 5. A...........................................................................................................................9
Answer 5. B............................................................................................................................9
Answer 6..............................................................................................................................10
Reference..................................................................................................................................11

2SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
Section B
Answer 1
Table 1: Monthly return of S&P and QBE.AX for the first period
Date Monthly Retrun of S&P Monthly Retrun of QBE.AX Date Monthly Retrun of S&P Monthly Retrun of QBE.AX Date Monthly Retrun of S&P Monthly Retrun of QBE.AX
28-02-2005 30-06-2007 -0.020828971 -0.004611331 31-10-2009 0.012534395 -0.007868852
31-03-2005 -0.030804385 0.020901372 31-07-2007 0.016763777 0.011912641 30-11-2009 0.035989322 -0.009253139
30-04-2005 0.030929894 0.014075496 31-08-2007 0.051318927 0.002616089 31-12-2009 -0.061799366 -0.006004003
31-05-2005 0.041666692 -0.009463722 30-09-2007 0.028365708 0.01826484 31-01-2010 0.014902857 0.005369128
30-06-2005 0.026019826 -0.01656051 31-10-2007 -0.032720865 -0.01153107 28-02-2010 0.051275372 -0.009345794
31-07-2005 0.013215458 -0.004533679 30-11-2007 -0.029587836 -0.022683085 31-03-2010 -0.013967818 -0.014150943
31-08-2005 0.04371692 0.018867925 31-12-2007 -0.108757377 -0.023872679 30-04-2010 -0.078566317 -0.012987013
30-09-2005 -0.039106264 -0.004469987 31-01-2008 -0.013839922 0.002038043 31-05-2010 -0.028941055 0.014542936
31-10-2005 0.039262642 0.005131495 29-02-2008 -0.038836327 -0.002033898 30-06-2010 0.044635592 0.002047782
30-11-2005 0.027746635 -0.00319081 31-03-2008 0.044755998 -0.004755435 31-07-2010 -0.019873107 -0.002043597
31-12-2005 0.034891086 0.017925736 30-04-2008 0.010598044 0.016382253 31-08-2010 0.040574837 0.013651877
31-01-2006 -0.001683766 -0.022012579 31-05-2008 -0.077705338 -0.000671592 30-09-2010 0.017172576 -0.002693603
28-02-2006 0.042346615 -0.010932476 30-06-2008 -0.045615767 -0.008736559 31-10-2010 -0.016560879 -0.010128292
31-03-2006 0.025167087 -0.017555267 31-07-2008 0.031783702 0.016271186 30-11-2010 0.035075538 -0.005457026
30-04-2006 -0.048889408 -0.017207148 31-08-2008 -0.104194269 -0.007338225 31-12-2010 0.00183337 -0.023319616
31-05-2006 0.014435033 -0.02020202 30-09-2008 -0.126616672 -0.007392473 31-01-2011 0.016365572 0.021769663
30-06-2006 -0.017323933 0.028865979 31-10-2008 -0.068566451 0.025050779 28-02-2011 0.001283132 0.027491409
31-07-2006 0.025952648 0.022712091 30-11-2008 -0.005397448 0.005284016 31-03-2011 -0.003038448 -0.013377926
31-08-2006 0.007565429 -0.020901372 31-12-2008 -0.048787066 -0.011826544 30-04-2011 -0.023822438 0.001355932
30-09-2006 0.044682835 -0.006004003 31-01-2009 -0.055412758 -0.001329787 31-05-2011 -0.021302765 0.012186865
31-10-2006 0.018145048 0.018120805 28-02-2009 0.071042039 -0.003994674 30-06-2011 -0.039800326 -0.006688963
30-11-2006 0.034256909 -0.003955175 31-03-2009 0.055386476 -0.010695187 31-07-2011 -0.028951791 -0.004040404
31-12-2006 0.018254291 0.002647253 30-04-2009 0.009919323 -0.025 31-08-2011 -0.067008007 0.003380663
31-01-2007 0.010236619 0.00660066 31-05-2009 0.035856444 0.018711019 30-09-2011 0.072219726 -0.009433962
28-02-2007 0.027861123 -0.006557377 30-06-2009 0.07309922 0.023809524 31-10-2011 -0.041483513 -0.002040816
31-03-2007 0.02852377 -0.00330033 31-07-2009 0.055395876 -0.001993355 30-11-2011 -0.01534048 0.014314928
30-04-2007 0.023921505 0.001324503 31-08-2009 0.05905204 0.015312916 31-12-2011 0.050806116 0.028225806
31-05-2007 -0.006113898 0.003968254 30-09-2009 -0.021165339 0 31-01-2012 0.008398387 0.009803922
Answer 2
Table 2: Monthly return of S&P and QBE.AX for the second period
Date Monthly Retrun of S&P Monthly Retrun of QBE.AX Date Monthly Retrun of S&P Monthly Retrun of QBE.AX Date Monthly Retrun of S&P Monthly Retrun of QBE.AX
29-02-2012 30-06-2014 0.043960876 -0.007926829 31-10-2016 0.023092653 -0.007505716
31-03-2012 0.014163107 0.005882353 31-07-2014 -0.001242699 0.003073141 30-11-2016 0.041411599 -0.009889528
30-04-2012 -0.072851759 0.01754386 31-08-2014 -0.059208323 0.007353002 31-12-2016 -0.007924725 -0.008225676
31-05-2012 0.004489377 -0.014687101 30-09-2014 0.044173273 0.013990206 31-01-2017 0.016243003 -0.023104208
30-06-2012 0.042641551 -0.000648088 31-10-2014 -0.038649458 0.01019796 28-02-2017 0.026732205 0.036992116
31-07-2012 0.010985642 -0.001297017 30-11-2014 0.018445323 -0.003562886 31-03-2017 0.010093982 0
31-08-2012 0.016426844 0.020779221 31-12-2014 0.032766551 -0.00953516 30-04-2017 -0.033676001 -0.006432749
30-09-2012 0.029633007 -0.007633588 31-01-2015 0.060930876 0.008423525 31-05-2017 -0.00054154 0.005297234
31-10-2012 -0.002435245 0.018589744 28-02-2015 -0.006291291 -0.00477327 30-06-2017 -0.000157284 -0.004683841
30-11-2012 0.031735464 -0.00377596 31-03-2015 -0.01722821 0.004196643 31-07-2017 -0.001066339 0.012352882
31-12-2012 0.049429943 -0.010739103 30-04-2015 -0.002210674 0.010746269 31-08-2017 -0.005757267 0.027309763
31-01-2013 0.04617945 0.001915709 31-05-2015 -0.055078617 -0.002953396 30-09-2017 0.040023919 -0.010746606
28-02-2013 -0.026958738 0.015933716 30-06-2015 0.044000768 -0.007701363 31-10-2017 0.010306296 -0.013722127
31-03-2013 0.045243168 0.013801757 31-07-2015 -0.08636303 -0.013731343 30-11-2017 0.015946699 0.00057971
30-04-2013 -0.050970891 -0.00990099 31-08-2015 -0.035605896 -0.004237228 31-12-2017 -0.004517634 0.00405562
31-05-2013 -0.025169488 0.008749937 30-09-2015 0.04337259 0.009726443 31-01-2018 -0.003594116 0.00577034
30-06-2013 0.051930183 -0.014869827 31-10-2015 -0.013913788 0.008428597 28-02-2018 -0.042652942 -0.004589788
31-07-2013 0.016429137 0.008176164 30-11-2015 0.02504595 -0.002985015 31-03-2018 0.038771451 0.017291066
31-08-2013 0.016338832 0.004990642 31-12-2015 -0.054834855 0.001197485 30-04-2018 0.00488069 0.0101983
30-09-2013 0.039586906 -0.000620794 31-01-2016 -0.024892638 0.001794318 31-05-2018 0.03038976 0.00897364
31-10-2013 -0.019426763 0.001242298 29-02-2016 0.041365303 -0.006567224 30-06-2018 0.013818503 -0.023902223
30-11-2013 0.006033739 -0.00744423 31-03-2016 0.033328165 0.00360589 31-07-2018 0.006257731 -0.008542085
31-12-2013 -0.03030533 -0.020625 30-04-2016 0.024066086 0.023353232 31-08-2018 -0.017707082 0.015508329
31-01-2014 0.041387246 0.00319081 31-05-2016 -0.026995908 0.008777063 30-09-2018 -0.06078038 0.013574661
28-02-2014 -0.001850207 0.012086514 30-06-2016 0.062846316 0.009280742 31-10-2018 -0.027974481 0.022321429
31-03-2014 0.01747985 0.004399749 31-07-2016 -0.023245745 0.025287356 30-11-2018 -0.003670294 0.0163756
30-04-2014 0.000619392 0.01689612 31-08-2016 0.000533757 -0.006726513 31-12-2018 0.038661855 0
31-05-2014 -0.017623997 0.009230769 30-09-2016 -0.021744276 -0.022573308 31-01-2019 0.051886677 0.003222288
Answer 3
Average return, market capitalisation and P/E ratio of QBE.AX for first time period

3SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
Average return= ∑ of returns
Number of returns
Average return of S∧P∈first period= 0.1228
83 =0.00148
Average return of QBE . AX∈ first period= 0.0168
83 =0.0002
Table 3: Market capitalisation and P/E ratio of QBE.AX for the first time period
Date Market Capitalisation (in million $) P/E ratios Date Market Capitalisation (in million $) P/E ratios Date Market Capitalisation (in million $) P/E ratios
28-02-2005 120228.51 10.61 30-06-2007 133087.07 6.74 31-10-2009 15432.60 9.90
31-03-2005 122741.45 10.83 31-07-2007 134672.49 6.82 30-11-2009 15289.80 9.81
30-04-2005 124469.10 10.98 31-08-2007 135024.80 6.84 31-12-2009 15198.00 9.75
31-05-2005 123291.16 10.88 30-09-2007 137491.01 6.97 31-01-2010 15699.04 12.11
30-06-2005 121249.39 10.70 31-10-2007 135905.59 6.89 28-02-2010 15552.32 12.00
31-07-2005 120699.69 10.65 30-11-2007 132822.83 6.73 31-03-2010 15332.24 11.83
31-08-2005 122977.04 10.85 31-12-2007 129651.99 6.57 30-04-2010 15133.12 11.67
30-09-2005 122427.33 10.80 31-01-2008 144814.76 7.10 31-05-2010 15353.20 11.84
31-10-2005 123055.57 10.86 29-02-2008 144520.22 7.09 30-06-2010 15384.64 11.87
30-11-2005 122662.92 10.82 31-03-2008 143832.97 7.05 31-07-2010 15353.20 11.84
31-12-2005 124861.75 11.02 30-04-2008 146189.28 7.17 31-08-2010 15562.80 12.00
31-01-2006 126337.22 8.34 31-05-2008 146091.10 7.16 30-09-2010 15520.88 11.97
28-02-2006 124956.04 8.25 30-06-2008 144814.76 7.10 31-10-2010 15363.68 11.85
31-03-2006 122762.40 8.11 31-07-2008 147171.07 7.22 30-11-2010 15279.84 11.79
30-04-2006 120650.01 7.97 31-08-2008 146091.10 7.16 31-12-2010 14923.52 11.51
31-05-2006 118212.64 7.81 30-09-2008 145011.12 7.11 31-01-2011 16179.60 22.42
30-06-2006 121624.96 8.03 31-10-2008 148643.76 7.29 28-02-2011 16624.40 23.04
31-07-2006 124387.32 8.21 30-11-2008 149429.20 7.33 31-03-2011 16402.00 22.73
31-08-2006 121787.45 8.04 31-12-2008 147661.97 7.24 30-04-2011 16424.24 22.76
30-09-2006 121056.24 7.99 31-01-2009 15320.40 9.83 31-05-2011 16624.40 23.04
31-10-2006 123249.88 8.14 28-02-2009 15259.20 9.79 30-06-2011 16513.20 22.88
30-11-2006 122762.40 8.11 31-03-2009 15096.00 9.69 31-07-2011 16446.48 22.79
31-12-2006 123087.39 8.13 30-04-2009 14718.60 9.44 31-08-2011 16502.08 22.87
31-01-2007 134320.17 6.80 31-05-2009 14994.00 9.62 30-09-2011 16346.40 22.65
28-02-2007 133439.38 6.76 30-06-2009 15351.00 9.85 31-10-2011 16313.04 22.60
31-03-2007 132998.99 6.74 31-07-2009 15320.40 9.83 30-11-2011 16546.56 22.93
30-04-2007 133175.15 6.75 31-08-2009 15555.00 9.98 31-12-2011 17013.60 23.57
31-05-2007 133703.62 6.77 30-09-2009 15555.00 9.98 31-01-2012 18447.30 23.73
Average return, market capitalisation and P/E ratio of QBE.AX for second time period
Average return of S∧P for the second period=0.399
83 =0.0048
Average return of QBE . AX for the second period= 0.2058
83 =0.00248
Table 4: Market capitalisation and P/E ratio of QBE.AX for the second time period

4SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
Date Market Capitalisation (in million $) P/E ratios Date Market Capitalisation (in million $) P/E ratios Date Market Capitalisation (in million $) P/E ratios
29-02-2012 18268.2 23.50230415 30-06-2014 22176.01 28.34495 31-10-2016 23550.30137 27.90584578
31-03-2012 18375.66 23.640553 31-07-2014 22244.16 28.43206 30-11-2016 23317.4 27.62987013
30-04-2012 18698.04 24.05529954 31-08-2014 22407.72136 28.64112 31-12-2016 23125.59863 27.40259578
31-05-2012 18423.42 23.70199693 30-09-2014 22721.21 29.04181 31-01-2017 22393.42 18.02185792
30-06-2012 18411.48 23.68663594 31-10-2014 22952.92 29.33798 28-02-2017 23221.8 18.68852459
31-07-2012 18387.6 23.65591398 30-11-2014 22871.14136 29.23345 31-03-2017 23221.8 18.68852459
31-08-2012 18769.68 24.14746544 31-12-2014 22653.06136 28.95471 30-04-2017 23072.42 18.56830601
30-09-2012 18626.4 23.96313364 31-01-2015 22961.2 33.32008 31-05-2017 23194.64 18.66666667
31-10-2012 18972.66 24.40860215 28-02-2015 22851.6 33.16103 30-06-2017 23086 18.57923497
30-11-2012 18901.02 24.31643625 31-03-2015 22947.5 33.3002 31-07-2017 23371.17864 18.80874208
31-12-2012 18698.04 24.05529954 30-04-2015 23194.1 33.65805 31-08-2017 24009.44 19.32240437
31-01-2013 19565.43 68.81578947 31-05-2015 23125.59863 33.55865 30-09-2017 23751.42 19.1147541
28-02-2013 19877.18 69.9122807 30-06-2015 22947.5 33.3002 31-10-2017 23425.5 18.85245902
31-03-2013 20151.52 70.87719298 31-07-2015 22632.4 32.84294 30-11-2017 23439.08 18.86338798
30-04-2013 19952 70.1754386 31-08-2015 22536.50137 32.70378 31-12-2017 23534.14 18.93989071
31-05-2013 20126.57875 70.7894693 30-09-2015 22755.70137 33.02187 31-01-2018 23129.61 41.40142518
30-06-2013 19827.3 69.73684211 31-10-2015 22947.5 33.3002 28-02-2018 23023.45 41.21140143
31-07-2013 19989.41125 70.30702193 30-11-2015 22879.00137 33.2008 31-03-2018 23421.55 41.9239905
31-08-2013 20089.17125 70.65789912 31-12-2015 22906.39863 33.24055 30-04-2018 23660.41 42.35154394
30-09-2013 20076.7 70.61403509 31-01-2016 22947.5 27.19156 31-05-2018 23872.73 42.73159145
31-10-2013 20101.64125 70.70175877 29-02-2016 22796.79863 27.01299 30-06-2018 23302.11867 41.7102114
30-11-2013 19952 70.1754386 31-03-2016 22879.00137 27.11039 31-07-2018 23103.07 41.35391924
31-12-2013 19540.49 68.72807018 30-04-2016 23413.3 27.74351 31-08-2018 23461.36 41.99524941
31-01-2014 21426.36 27.38675958 31-05-2016 23618.8 27.98701 30-09-2018 23779.84 42.56532067
28-02-2014 21685.33 27.71777003 30-06-2016 23838 28.24675 31-10-2018 24310.64 43.51543943
31-03-2014 21780.74 27.83972125 31-07-2016 24440.8 28.96104 30-11-2018 24708.74133 44.22803088
30-04-2014 22148.75 28.31010453 31-08-2016 24276.39863 28.76623 31-12-2018 24708.74133 44.22803088
31-05-2014 22353.2 28.57142857 30-09-2016 23728.4 28.11688 31-01-2019 24788.36 44.37054632
Answer 4
2/1/2005
5/1/2005
8/1/2005
11/1/2005
2/1/2006
5/1/2006
8/1/2006
11/1/2006
2/1/2007
5/1/2007
8/1/2007
11/1/2007
2/1/2008
5/1/2008
8/1/2008
11/1/2008
2/1/2009
5/1/2009
8/1/2009
11/1/2009
2/1/2010
5/1/2010
8/1/2010
11/1/2010
2/1/2011
5/1/2011
8/1/2011
11/1/2011
0
2000
4000
6000
8000
Share price of S&P for the first period
Month
Share price of S&P
Figure 1: Line graph for the share price of S&P for the first period
2/1/2005
5/1/2005
8/1/2005
11/1/2005
2/1/2006
5/1/2006
8/1/2006
11/1/2006
2/1/2007
5/1/2007
8/1/2007
11/1/2007
2/1/2008
5/1/2008
8/1/2008
11/1/2008
2/1/2009
5/1/2009
8/1/2009
11/1/2009
2/1/2010
5/1/2010
8/1/2010
11/1/2010
2/1/2011
5/1/2011
8/1/2011
11/1/2011
13
13.5
14
14.5
15
15.5
16
16.5
Share price of QBE.AX for the first period
Month
Share price of QBE.AX

5SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
Figure 2: Line graph for the share price of QBE.AX for the first period
2/1/2012
6/1/2012
10/1/2012
2/1/2013
6/1/2013
10/1/2013
2/1/2014
6/1/2014
10/1/2014
2/1/2015
6/1/2015
10/1/2015
2/1/2016
6/1/2016
10/1/2016
2/1/2017
6/1/2017
10/1/2017
2/1/2018
6/1/2018
10/1/2018
0.00
1000.00
2000.00
3000.00
4000.00
5000.00
6000.00
7000.00
Share price of S&P for the second period
Month
Share Price of S&P
Figure 3: Line graph for the share price of S&P for the second period
2/1/2012
5/1/2012
8/1/2012
11/1/2012
2/1/2013
5/1/2013
8/1/2013
11/1/2013
2/1/2014
5/1/2014
8/1/2014
11/1/2014
2/1/2015
5/1/2015
8/1/2015
11/1/2015
2/1/2016
5/1/2016
8/1/2016
11/1/2016
2/1/2017
5/1/2017
8/1/2017
11/1/2017
2/1/2018
5/1/2018
8/1/2018
11/1/2018
0
4
8
12
16
20
Share prie of QBE.AX for the second period
Month
Share price of QBE.AX
Figure 4: Line graph for the share price of S&P for the second period

6SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
Answer 5
Below -0.025 (-0.017 to -
0.010) (-0.010 to -
0.002) (-0.002 to -
0.006) (-0.006 to
0.013) (0.013 to
0.021) above 0.021
0
5
10
15
20
25
30
Histogram of QBE.AX Monthly Return for First Time Period
Figure 5: Histogram of QBE.AX monthly return for the first period
The histogram of monthly return for QBE.AX presented in the figure 5 which is not
uniformly distributed as the histogram does not look like bell shaped. Hence the return of
finance company is not normally distributed.
below -0.015 (-0.015 to -
0.007) (-0.007 to
0.002) (0.002 to
0.011) (0.011 to
0.020) (0.020 to
0.028) (0.028 to
0.037)
0
5
10
15
20
25
30
Histogram of QBE.AX Monthly Return for Second Time period
Figure 6: Histogram of QBE.AX monthly return for the second period

7SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
The histogram of monthly return for QBE.AX for the second period presented in the
figure 6 which is left skewed with long tail on the right side. So, it can be said that the
monthly return of the financial company is not normally distributed.
Answer 6
Table 5: Summary statistics of Monthly return of S&P and QBE.AX for the first period
Monthly Return of S&P for First
Period
Monthly Return of QBE.AX for First
Period
Mean 0.001479422 Mean 0.000202283
Sample Variance 0.001859323 Sample Variance 0.000187966
Table 6: Summary statistics of Monthly return of S&P and QBE.AX for the second period
Monthly Return of S&P For
Second Period
Monthly Return of QBE.AX For
Second Period
Mean 0.00480684
1 Mean 0.002479571
Sample Variance 0.00110090
2 Sample Variance 0.000145938
The average monthly returns of the finance company in the first period is smaller than
the second period. The average monthly returns for the first period and second period is
0.0002% and 0.0025% respectively. The similarity is found for the S&P in case of average
monthly return. In the first period and second period the average return is 0.0015% and
0.0048% for the S&P. The variance is 10 times more for S&P than the finance company for
both the period. However, the variance for second period in case of monthly return for both is
less than the first period.

8SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
Section C
Answer 1
The standard deviation presents the market volatility and thus the risk. In a normal
distribution, the return values fall within the standard deviation of the mean (Bekaert,
Hoerova & Duca, 2013). The higher unpredictable price action presents the higher risk. The
SD predicts the next closing price or the return. It says the next closing price will lie between
(Mean of return ± SD of return). For example, a stock with mean price of $50 and SD of $6
with the assumption of 95% confidence interval or uncertainty, it can be interpreted in the
following way. The next closing price will lie between $44 and $56 (Charness, Gneezy &
Imas, 2013).
Answer 2
Table 7: Standard deviation and sample variance of Monthly return of S&P and QBE.AX for
the first period
Monthly Return of S&P for First
Period
Monthly Return of QBE.AX for First
Period
Standard Deviation 0.043119869 Standard Deviation 0.013710062
Sample Variance 0.001859323 Sample Variance 0.000187966
Table 8: Standard deviation and sample variance of Monthly return of S&P and QBE.AX for
the second period
Monthly Return of S&P For
Second Period
Monthly Return of QBE.AX For
Second Period
Standard Deviation 0.03317983
7 Standard Deviation 0.012080501
Sample Variance 0.00110090
2 Sample Variance 0.000145938

9SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
Answer 3
The above two tables, table 7 and table 8 presents the variance and standard deviation
for the two period and for S&P and QBE.AX. The table 7 shows that the SD of monthly
return of S&P is 0.04312 with mean 0.00148 and the SD of monthly return of financial
company is 0.01371 with mean 0.0002 which implies that the next monthly return for period
one will lie between -0.04164 and 0.0446 and the monthly return of the QDE.AX will lie
between -0.01351 and 0.01391 in the first period. Similarly for the second period, the next
monthly return for S&P will lie between -0.02837 and 0.03799 and for the financial company
it will lies between -0.0096 and 0.01456 (Lioui & Maio, 2014).
Answer 4
The standard deviation of the monthly return of financial company in the first period
and second period is less than SD of the monthly return of S&P in the respective time
periods. This implies that the monthly return of the QDE.AX is less volatile than the market
return (Girardi & Ergün, 2013).
Answer 5. A
The risk premium (β)= cov ( Returnof S∧P , Return of QBE . AAX )
var ( Returnof S∧P)
The risk premium for the first period is calculated using the above formula and the
outcome is 0.066707. Similarly the risk premium for the second period is -0.02394. The β for
the first period indicates that the risk of financial company is less volatile than the market as
the β vale is greater than 0 but less than 1. The β value for the second period is negative
which means the risk of the financial market is negatively correlated to the market (Acharya,
Almeida & Campello, 2013).

10SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
Answer 5. B
The beta of an investment stock is a measure of the volatility of the stock return
relative to the whole market. It is nothing but a risk measure and a part of Capital asset
pricing model. The company with higher risk premium i.e. β implies higher expected return
and higher risk (Ersbøll et al., 2014).
In the first time period, the risk premium is 0.066707 which is less than 1 and greater
than 0. This implies that the risk is less volatile than the market that means the risk is less and
the expected return of the stock is also less.
In the second time period, the risk premium is -0.02394 which is less than 0. This
implies that the risk of the stock is negatively correlated with the market. This indicates that
the risk is high when the market is growing as well as the expected return also falls when the
market return is high.
Answer 6
The source of inherent risk in an investment is majorly divided in two parts. The first
source is specific factors of a company like, loss of a major customer, loss of legal battle and
major regulatory action. The second source is wide economic shocks like change in central
bank policies, change in taxes and natural disasters. The risk that has influence on the whole
market is called the systemic risk. The investment’s systematic risk is measured by the β
which provides an appropriate risk measure as it considers the undiversifiable risk. While
calculating β, it captures the market as well as the investment stock volatility (Della Corte,
Ramadorai, & Sarno, 2016). Moreover, β is better measure as only the undiversifiable risk is
priced and the unique risk is diversified away. This is why the β is better measure.

11SHARE PRICE, AVERAGE RETURN AND RISK ANALYSIS
Reference and bibliography
Acharya, V. V., Almeida, H., & Campello, M. (2013). Aggregate risk and the choice between
cash and lines of credit. The Journal of Finance, 68(5), 2059-2116.
Bekaert, G., Hoerova, M., & Duca, M. L. (2013). Risk, uncertainty and monetary
policy. Journal of Monetary Economics, 60(7), 771-788.
Bevis, H. W. (2013). Corporate Financial Reporting in a Competitive Economy (RLE
Accounting). Routledge.
Brink, C. H. (2017). Measuring political risk: risks to foreign investment. Routledge.
Charness, G., Gneezy, U., & Imas, A. (2013). Experimental methods: Eliciting risk
preferences. Journal of Economic Behavior & Organization, 87, 43-51.
Della Corte, P., Ramadorai, T., & Sarno, L. (2016). Volatility risk premia and exchange rate
predictability. Journal of Financial Economics, 120(1), 21-40.
Ersbøll, A. S., Hedegaard, M., Søndergaard, L., Ersbøll, M., & Johansen, M. (2014).
Treatment with oral beta‐blockers during pregnancy complicated by maternal heart
disease increases the risk of fetal growth restriction. BJOG: An International Journal
of Obstetrics & Gynaecology, 121(5), 618-626.
Girardi, G., & Ergün, A. T. (2013). Systemic risk measurement: Multivariate GARCH
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Hannoun, H. (2013). Sovereign risk in bank regulation and supervision: Where do we
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Houweling, P., & Van Zundert, J. (2017). Factor investing in the corporate bond
market. Financial Analysts Journal, 73(2), 100-115.

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Lioui, A., & Maio, P. (2014). Interest rate risk and the cross section of stock returns. Journal
of Financial and Quantitative Analysis, 49(2), 483-511.
Myšková, R., & Hájek, P. (2017). Comprehensive assessment of firm financial performance
using financial ratios and linguistic analysis of annual reports. J. Int. Stud, 10(4), 96-
108.

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