Question 3 (50 marks)

This question relates to material covered in Topics 1-5. This question addresses the 1^st, 2^nd and 3^rd subject learning outcomes.

In the table below are the monthly share prices for global resource giant BHP and the ASX All Ordinaries index for the year 1/10/2019 to 30/09/2020.

BHP paid fully franked dividends of $0.9940 on March 5, 2020 and $0.7657 on September 3, 2020.

1. Calculate the grossed-up value of the two fully franked dividends paid by BHP (5 marks).
2. Calculate the monthly holding period returns (in both $ and %) for BHP (including the grossed-up amount of the dividends paid) for the year of data provided above (5 marks).
3. Calculate the average monthly return (%) for BHP (2.5 marks).
4. Calculate the annual holding period return (in both $ and %) for BHP (including the grossed-up amount of the dividends paid) (2.5 marks).
5. Calculate the risk of BHP as measured by its standard deviation for the year (5 marks).
6. Calculate the monthly holding period returns (%) for the ALL ORDS (5 marks).
7. Calculate the annual holding period return (%) for the ALL ORDS (2.5 marks).
8. Calculate the average monthly return (%) for the ALL ORDS (2.5 marks).
9. Calculate the risk of ALL ORDS as measured by its standard deviation for the year (5 marks).
10. Using Excel, prepare a line graph showing the monthly holding returns for both BHP and the ALL ORDS index (5 marks).
11. If you had $10,000 to invest today would you invest in BHP shares or in an index fund that matched the return of the ALL ORDS index? Give a full explanation of your conclusions including the use of historical risk and return (10 marks).

BHP Oct 2019 Nov 2019 Dec 2019 Jan 2020 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020 Sep 2020 Open 36.59 35.95 38.23 38.92 39.40 33.60 28.98 32.35 34.64 35.82 36.75 37.91 Close 35.95 38.23 38.92 39.40 33.60 28.98 32.35 34.64 35.82 36.75 37.91 35.60 ALL ORDS Oct 2019 Nov 2019 Dec 2019 Jan 2020 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020 Sep 2020 Open Close 6,800.606,772.90 6,772.90 6,948.00 6,948.00 6,802.40 6,802.40 7,121.20 7,121.20 6,511.50 6,511.50 5,110.60 5,110.605,597.70 5,597.70 5,872.20 5,872.206,001.30 6,001.30 6,058.30 6,058.306,245.90 6,245.90 6,009.30 BHP Oct 2019 Nov 2019 Dec 2019 Jan 2020 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020 Sep 2020 Open 36.59 35.95 38.23 38.92 39.40 33.60 28.98 32.35 34.64 35.82 36.75 37.91 Close 35.95 38.23 38.92 39.40 33.60 28.98 32.35 34.64 35.82 36.75 37.91 35.60 ALL ORDS Oct 2019 Nov 2019 Dec 2019 Jan 2020 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020 Sep 2020 Open Close 6,800.606,772.90 6,772.90 6,948.00 6,948.00 6,802.40 6,802.40 7,121.20 7,121.20 6,511.50 6,511.50 5,110.60 5,110.605,597.70 5,597.70 5,872.20 5,872.206,001.30 6,001.30 6,058.30 6,058.306,245.90 6,245.90 6,009.30