Determine holding period returns for bhp billiton ltd

Assignment Help Corporate Finance

Reference no: EM131044165

Assessment Task - Valuation Assignment

Q1. Portfolio Valuation - General & Practical

You have used Yahoo7 Finance to determine holding period returns for BHP Billiton Ltd and Commonwealth Bank of Australia. In this assessment, you will gain further experience of using the resource.

Assume that you are acting as financial analyst for a firm. You have been assigned $100k by your supervisor. Your task is to develop a portfolio consisting of shares from three companies - BHP Billiton Ltd (symbol: BHP.AX), Commonwealth Bank of Australia (symbol: CBA.AX), and Myer Holdings Ltd (symbol: MYR.AX). As part of this task, you note the closing prices of these shares on 1 Dec 2014 and 1 Dec 2015. You presume that the expected return of these shares are the same as holding period return of these shares over the period 1 Dec 2014 - 1 Dec 2015 (the holding period returns are to be calculated based upon closing prices at these two dates and dividends attained between these two dates).

You are considering the following investment choices.

Investment Choice	Percentage of $100k invested in BHP.AX	Percentage of $100k invested in CBA.AX	Percentage of $100k invested in MYR.AX
A	15%	80%	5%
B	10%	80%	10%
C	5%	80%	15%

(a) Given the information and presuming expected return of the portfolio as the selection criteria, which of the above investment choices will you adopt?

(b) Suppose, you are also given the following (hypothetical) information:

Share	β
BHP.AX	1.10
CBA.AX	0.85
MYR.AX	2.00

If you are risk averse, will your investment choice change due to the above-indicated information for β? Why or why not?

Q2. Bond Valuation - General

Suppose an investor is considering investment in the following three bonds:

Bond A: This coupon bond has a face value of $1000 and coupon of 4.5% paid semi-annually. The bond matures in 10 years.

Bond B: This is another coupon bond, which also has a face value of $1000 and coupon of 4.5% paid semi-annually. However, it matures in 20 years.

Bond C: This is a zero-coupon bond, which also has a face value of $1000.It matures in 10 years. Interest is compounded semi-annually.

Suppose, the investor evaluates the bonds for the following sets of market interest rates (i.e., i in the Bond formula):

3.5%

4.5%

6.5%

10.0%

Given the above information:

Discuss how the prices for these bonds change with the market interest rate. In your discussion, also indicate whether there is any difference between the bonds in respect to these changes of price. Further, indicate how the changes in market interest rate may relate to the investor's investment decision.

Q3. Bond Valuation- Practical

Instructions

For this question, you will get both an experience of using computer software to solve financial problems and also using online resources in financial modelling. Indeed, most of the modern corporates employ some kind of software (and relevant finance functions) in relation to finance issues.

Microsoft Excel:

A particular software possessing many finance function facilities is Microsoft Excel (which, as indicated on course profile, is one of the required IT resources). However, another option is OpenOfficeCalc (which is an open-source and free software compatible to Excel). The OpenOfficeCalc (part of Apache OpenOffice suit) may be downloaded from:

https://www.openoffice.org/download/index.html

The software you will need for this question is either Microsoft Excel or OpenOfficeCalc (i.e., any one of these two). First, please note the following links to relevant documentations:

https://support.office.microsoft.com/en-AU/article/rate-function-9f665657-4a7e-4bb7-a030-83fc59e748ce (for Microsoft Excel)

https://wiki.openoffice.org/wiki/Documentation/How_Tos/Calc:_RATE_function (forOpenOfficeCalc)

The above links show the function to determine the interest rate per period (i/m), given present value (PV), future value (FV), payment (C), and total number of periods (m x n).

As for the symbols shown within brackets in the previous line, please note that these relate to the "Price of a bond making multiple payments each year" formula within the formula sheet.

BOND MARKET:

Similar to share market, a small-scale bond market also exists in Australia. Please browse the ASX website on Treasury Bonds:

https://www.asx.com.au/asx/markets/interestRateSecurityPrices.do?type=GOVERNMENT_BOND

Please note the bonds, codes of which start with "GSB". Select any one of these treasury bonds, for which the face value is $100 and maturity date is beyond 2016. For the bond you have selected, please also note that the coupon rate, next payment date and payment frequency.

The Problem to Solve:

For the bond you have selected, using either Microsoft Excel or OpenOfficeCalc's RATE function, determine the YTM of the bond if you purchase it at the price of:

i. $95 on 20Mar 2016

ii. $110 on 20 Oct 2016

Reference no: EM131044165

Questions Cloud

What were the major findings and results : Start by giving a brief introduction and the necessary background to the study, and state its purpose. Describe the specifics of what this study involved. What were the major findings and results? How useful or significant are the findings.

Lance willard for celebrity endorsements of bud : Celebrity endorsement. L&LAdvertising just signed a contract with movie star Lance Willard for celebrity endorsements of Bud's Best bacon. The president of the firm assigns the account to Annie, who soon learns the awkward fact that Lance has ju..

Write an essay about the different for media and written : Write an essay about the different for media and written. Compare and contrast similarity and/or difference of two modes (written and oral with the support of media.

The value of andragogy and pedagogy : For this option, write a two to three page paper (not including the title page and reference page) comparing and contrasting andragogy and pedagogy in adult learning. Research the pros and cons of each approach as it relates to adult learning. Whi..

Determine holding period returns for bhp billiton ltd : FINC19011BUSINESS FINANCE TERM, 2016. You have used Yahoo7 Finance to determine holding period returns for BHP Billiton Ltd and Commonwealth Bank of Australia. In this assessment, you will gain further experience of using the resource

What is the book value at the end of the sixth year : Equipment costing $80,000 with a useful life of 10 years and a residual value of $8,000 has been depreciated for 6 years by the straight-line method. Assume a fiscal year ending December 31. Assume asset purchased Jan 1. (a) What is the book v..

Persons or departments accountable for the actions : This paper will summarize the findings of the first two power point presentations and incorporate them into a paper that will add an action plan of major tasks, persons or departments accountable for the actions, time to complete.

Implementing a new business-wide it system : 1. Workers who are involved in change decisions are more likely to be ______ 2. A reason why the introduction of new technology might cause resistance to change is ______

Write a conclusion that reaffirms the thesis statement : Create a detailed introduction that contains a thesis that offers a debatable claim based on one of the prompts on the list. Apply critical thought by analyzing the primary source you selected from the approved List of Literary Works.

User Account

All Pages