Portfolio Analysis and Valuation Report: Finance Module, Semester 1

This report provides a comprehensive analysis of a financial portfolio, evaluating its expected rate of return, beta, and performance using various financial models. The analysis includes calculations of the portfolio's overall expected return, beta, and a comparison of individual stock returns against the market return using the Security Market Line (SML). The report identifies gainers and losers based on the SML and concludes with an investment recommendation. Furthermore, the report applies the Capital Asset Pricing Model (CAPM) to determine the required rate of return for Newcrest and Orica Ltd, and employs the dividend model for share valuation. The performance of Orica and Newcrest shares is also assessed, with interpretations based on their fluctuating share prices. Appendix includes detailed data and calculations supporting the analysis.

TABLE OF CONTENTS
TASK 3............................................................................................................................................2
A) Calculation of expected rate of return of portfolio................................................................2
B) Calculation of portfolio beta..................................................................................................2
C) Security market line (SML)...................................................................................................2
D) Gainers and losers in security market line.............................................................................3
E) Conclusion..............................................................................................................................3
TASK 4............................................................................................................................................3
Required rate of return on Newcrest and Orica Ltd....................................................................3
Valuation using dividend model.................................................................................................3
Performance of Orica and Newcrest...........................................................................................4
APPENDIX......................................................................................................................................5

TASK 3
A) Calculation of expected rate of return of portfolio
The rate which shows that stock will provide how much return behind making investment
is known as expected rate of return. In the current report there are total five stocks considered in
the portfolio and all gives positive return to the investor. The expected rate of return of the
overall portfolio is 15.80% which is better for the shareholders.
B) Calculation of portfolio beta
Apart from the rate of return there is beta is also associated with the every stock and
shares or portfolio. Beta is a value which shows that with the each stock or overall portfolio there
is how much systematic risk is there. In the current scenario there is beta of the portfolio is such
as 0.83 which is too much higher. Further, when the investor invest money in the current
portfolio then the higher risks will be there along with high return.
C) Security market line (SML)
The security market line represents two values which are such as market return as well as
expected rate of return with the CAPM model. It can be clearly visualized that return of all the
stocks such as Harvey Norman holding limited, National Australia bank, Qantas airways limited,
Origin energy ltd and BHP Billiton Limited is lower as compare to the standard rate of return
and market return.

D) Gainers and losers in security market line
On the basis of SML any stock not gives higher return as compare to the market return.
Because of this all the securities are looser and not anyone is winner in the overall portfolio.
E) Conclusion
In the current situation there is any stock not giving more return in comparison to the
market but it is not necessary that in the future it will be carry on. In the future times if value of
the particular stock will increase then stock can give more return and become winner.
TASK 4
Required rate of return on Newcrest and Orica Ltd
Required rate of return is computed by using capital asset pricing model. Under this risk
free rate of return, beta and market rate of return which is expected is taken in to consideration. It
can be seen from the table that beta value of the firm Newcrest is -0.03 and same of Orica is
0.65. This means that in case stock market index value will be changed by the small point’s
shares value will be changed slightly. It can be seen that value of beta in case of Orica is 0.65
which means that with change in index share price of the firm will change moderately. Thus, it
can be said that one must make investment in the Orica instead of Newcrest.
Valuation using dividend model
It is the model that is used to valuation of shares in the stock market. Results of the table
are reflecting that shares of Orica have a fair value of 0.032 and same of Newcrest is 0.29. Thus,
one must make investment in Orica because its shares value is high in order to earn return on the
investment.

Performance of Orica and Newcrest
Figure 1Performance of Newcrest share price
Figure 2Performnace of Orica share price
Interpretation
Newcrest share is fluctuating at fast rate then Orica. Thus, there is heavy risk in case of
the former firm then latter firm. Due to this reason investment must be made in Orica.

APPENDIX
SHARE
Expected
portfolio
return
Portfoli
o beta RFR Market return CAPM
HARVEY
NORMAN
HOLDINGS
LIMITED 0.032 0.158 7 10 8.55472
NATIONAL
AUSTRALIA
BANK LTD 0.042 0.1343 7 10
8.32419
8
QANTAS
AIRWAYS
LIMITED 0.03 0.1896 7 10 8.85808
ORIGIN
ENERGY LTD 0.03 0.0948 7 10
7.93662
4
BHP BILLITON
LIMITED 0.024 0.2528 7 10
9.46732
8
Expected
portoflio return 0.158 0.8295