Beruflich Dokumente
Kultur Dokumente
Part A
Question 1(b): Calculate the discretely compounded annual returns and the respective risk for both
firms......................................................................................................................................................................4
Question 1(c): Calculate the continuously compounded annual returns and the respective risk for both
firms. Which is the better investment of the two? Analyze your answer......................................................5
Question 2: Calculate the weight (proportion) of the two assets that produce the lowest portfolio
variance? (Use the Goal Seek function)............................................................................................................6
Question 3: Calculate the expected return, the variance, the standard deviation, and the correlation for
each share..............................................................................................................................................................6
Part B
Question 4: Is it worthwhile to quit your current job and do your postgraduate? What is the IRR of
your study?...........................................................................................................................................................7
Question 5: Analyse the FOUR (4) advantages and disadvantages of fund raising either from bond or
share to the company’s performance...............................................................................................................12
Bonds:................................................................................................................................................................. 12
Equity:................................................................................................................................................................ 12
Conclusion:........................................................................................................................................................14
References...................................................................................................................................................15
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Part A
The factors of risk and return involved in both the companies has shown the world-famous
relationship that is higher the risk involved higher would be return. Same goes in the case of BSL
and ASB. As can be made evident from the calculations performed BSL has high risk which causes
it to yield a higher return. While ASB has low risk that’s why the rate of return in ASB is also
lower than the BS. Finance is important component at different stages. It plays vital role while
decision making by investors in investing in stocks. Risks and return are calculated. It is used to
make portfolio to decrease the risk involve in individual stocks by combination of multiple stocks.
Which is positive indicator for investors and it build satisfaction among them about their
investments, which lead to increase in foreign direct and indirect investment. Corporate financing
has impact on liquidity, solvency and profitability of company. Multiple financing options are now
a days available to entities. Which can be classified on the basis of nature, function and timeline?
There are two major sources of financing, which are debt and equity. Equity and Debt financing
both involve unique risks. These risks can be trigger down by analysis of financial viability of
those securities [ CITATION Des17 \l 1033 ].
Question 1(c): Calculate the continuously compounded annual returns and the respective risk for
both firms. Which is the better investment of the two? Analyze your answer.
BSL AS
B
Average Risk 2% 1%
Average Return 10% 8%
By looking at the data and the calculation performed over it, it is visible that risk in BSL is high
that is at 2% on the other hand risk calculated for the ASB is at 1%. Along with this the
calculation for return demonstrates that in BSL it can vary from 8% to 12 % while in the case of
ASB it can vary from 7% to 9%.
Keeping these in view, if one is to take the investment decision it is in his favor to Invest in BSL
the recommended is based on the factor of return percentage calculated which states that it is
higher in BSL as compared to ASB.
Question 2: Calculate the weight (proportion) of the two assets that produce the lowest portfolio
variance? (Use the Goal Seek function)
Question 3: Calculate the expected return, the variance, the standard deviation, and the
correlation for each share.
Astro OCK
Group
Drop 0.022 0.0375
Increase 0.136 0.18
Net Impact 0.114 0.1425
Effect on Co variance 0.001026 0.001283
Existing Prices 0.79 0.44
Impact on Prices 0.88006 0.5027
Std. Deviation 0.08 0.06
Correlation 0.00077 0.00171
Variance 0.0064 0.0036
Expected return 10% 12
Part B
Question 4: Is it worthwhile to quit your current job and do your postgraduate? What is the
IRR of your study?
1) For companies when calculating the tax figure at the yearend, return given on bonds can be
treated as expense of entity.
3) Its issue cost is less than the equity financing due to the fact that it is paid for a said portion of
time whereas shareholders are there till the dissolution of the company [ CITATION Nun19 \l
1033 ].
Disadvantages of Bond:
It has following disadvantages;
2) Shareholders need high profit figures from the company whereas the interest paid on the
bonds decrease profit figure of the entity.
4) Its long term financing carry much higher cost [ CITATION Nun19 \l 1033 ].
Equity:
It is the amount that has been collected from shareholders in return from the ownership provided
to them in the shape of shares; it is one off source of finance of entity, which can be used by
entity for financing its activities. As was the case of debt it also has many benefits along with
their cost in form of disadvantages. Some of them are given below:
[ CITATION Mar19 \l 1033 ]
Advantages of Share:
Its advantages are too many but some are given below:
1) It does not carry constant cost like in form of interest on debt; rather if the company is in the
position of distributing the profits they do it otherwise leave it.
Disadvantages of Share:
Its disadvantages include following but not limited to them:
1) For the calculation of tax figure dividend cannot be treated as expense and hence a higher
amount of tax is paid.
3) Most of the times it has been seen that compliance of regulation is difficult in the case of
share issue and its later changes that are made to it
Both type of financing carries advantages and disadvantages. However, availability of all options
is almost impossible for entity. So, management of companies decide best option. This is
dependent upon the use of finance[ CITATION Sut17 \l 1033 ].
Conclusion:
It has been proved that risk in portfolio would be decreased if they are negatively correlated with
each other, which means that the decrease in one would lead to the increase in the other just like
the decreases risk in stock, which would lead toward maximization of profits and capital gains.
References
Çitilci, T. a. A. M., 2020. The Importance of PESTEL Analysis for Environmental Scanning Process. . In:
s.l.:In Handbook of Research on Decision-Making Techniques in Financial Marketing, pp. 336-357.
Desai, V. K. J. S. R. a. D. R., 2017. A study of the relationship between a going concern opinion and its
financial distress metrics.. In: s.l.: Journal of Emerging Technologies in Accounting, 14(2), pp. 17-28
Kreß, A. E. B. a. T. I., 2019. Development costs capitalization and debt financing. . In: s.l.:Journal of
Business Finance & Accounting, 46(5-6), pp. 636-685.
Martens, K. B. J. a. L. K., 2019. Measuring transport equity: Key components, framings and metrics. . In:
s.l.:Elsevier, pp. 13-36.
Nunes, M. G. E. M. F. a. N. M., 2019. The Memory Advantage of Long Short-Term Memory Networks
for Bond Yield Forecasting.. Volume SSRN 3415219.
Ray, D., 2018. The impact of the capital and liquidity regulations on the banking sector after global
economic and financial crisis: comparative advantage and disadvantage in risk monitoring. . In:
s.l.:International Journal of Development Research, 8(05), pp. 20649-20658.
Sutrisno, P., 2017. Earnings Management: An Advantage or Disadvantage?. In: s.l.:Accounting and
Finance Review (AFR), 2(2), pp. 64-72.
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