Exhibit 1 Monthly Values for the Market Index and the Two Traded Shares Month Market Index (points) Hydro Ltd ($) Luna Ltd ($) 1 5745 21 00 0 56 2 5976 23 55 0 66 3 6057 21 99 0 71 4 6167 23 70 0 90 5 6147 23 90 0 90 6 6117 24 65 0 95 7 5869 24 06 0 93 8 6072 26 82 1 00 9 6124 30 04 1 10 10 6290 30 90 1 15 11 6366 31 59 1 48 12 6427 28 44 1 66 13 6325 26 50 1 46 14 5913 23 66 1 31 15 5749 21 84 1 49 16 5709 24 63 1 52 17 5937 24 62 1 50 18 6252 24 51 1 50 19 6261 26 08 1 57 20 6418 29 12 1 55 21 6491 30 72 1 61 22 6699 30 65 1 57 23 6896 29 75 1 62 24 6698 30 60 1 57 25 6800 31 62 1 85 26 6772 33 92 1 91 27 6948 33 67 1 97 28 6802 36 20 1 98 29 7121 33 11 2 23 30 6501 21 35 2 05 31 5342 25 49 2 02 32 5625 25 72 1 99 33 5933 25 50 1 93 34 6031 26 18 1 93 35 6078 28 37 1 94 36 6245 29 97 1 85 37 6178 28 63 1 78 38 6256 32 06 1 75 39 6742 31 00 2 19 40 6850 31 06 2 40 41 6895 30 36 2 29 42 6955 34 35 2 17 43 7080 37 17 2 15 44 7320 41 05 2 06 45 7450 43 09 1 92 46 7611 41 64 2 10 47 7723 45 67 2 13 48 7897 46 95 2 19 49 7689 46 68 2 20 50 7712 44 11 2 20 51 7658 43 57 2 14 52 7802 40 35 2 20 53 7793 37 27 2 26 54 7315 36 70 2 18 55 7824 33 66 2 19 56 7789 33 79 2 29 57 7724 34 38 2 34 58 7455 35 30 2 25 59 7360 36 25 2 33 60 7477 36 44 2 25 1 Using the information given in Exhibit 1, calculate the historical returns for each company and the share market index With the use of the excel functions calculate the average monthly return and standard deviation of returns for each company and the market index Provide a summary of these results in a table format in your report Are these results consistent with the risk return relationship as described in finance theory 2 Using your answers to Question 1, above, and assuming that investors can only invest in one of the two alternative shares in Exhibit 1, use the average return and standard deviation to determine which share would be the most appealing to a risk averse investor Provide numerical justification for your selection based on the coefficient of variation When you answer this question, also address what finance theory assume around investor preferences for risk and return with a focus on risk aversion What are the annual return prediction intervals for each stock and the market for the next period What does this measure tells us about the variation of returns for the market and each share

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Posted on Jul 29, 2024

Exhibit 1 - Monthly Values for the Market Index and the Two Traded Shares.

1-Using the information given in Exhibit 1, calculate the historical returns for each company and the share market index. With the use of the excel functions calculate the average monthly return and standard deviation of returns for each company and the market index. Provide a summary of these results in a table format in your report. Are these results consistent with the risk/return relationship as described in finance theory?
2-Using your answers to Question 1, above, and assuming that investors can only invest in one of the two alternative shares in Exhibit 1, use the average return and standard deviation to determine which share would be the most appealing to a risk-averse investor. Provide numerical justification for your selection based on the coefficient of variation. When you answer this question, also address what finance theory assume around investor preferences for risk and return with a focus on risk aversion. What are the annual return prediction intervals for each stock and the market for the next period? What does this measure tells us about the variation of returns for the market and each share?