Task: Evaluate stock price, and estimate the impact of an important announcement on its stock prices

1. Evaluate stock price, and estimate the impact of an important announcement on its stock prices

1. Stock beta: Download 3 years of weekly stock returns and ASX300 market index returns ending December 2020 from Yahoo Finance and estimate the stock beta. Does the estimate of stock beta make sense to you? (The normal range of beta is from 0.5 to 3.) Provide reasoning, why or why not? If not, you have to use the stock beta from Yahoo Finance for the later parts.

2. Estimate the Cost of equity, using the CAPM return. Assume the market risk premium, Rm-Rf=6%, and use the current 10-year Government bond yield for the risk-free rate.

3. DPS is the total annual dividend per share paid for the financial year. Based on the previous 5-year pattern of DPS payments, estimate the intrinsic values using 1-stage models (the constant dividend growth model), and the 2-stage non-constant dividend growth model. Please use the 10-year Government bond yield as the Dividend growth rate in the equilibrium stage. You need to choose which model is the most appropriate one to use, and compare the intrinsic value versus the share price as of November 2020 (current price). Would you recommend to buy or sell the shares in November 2020?
4. You will study an announcement in 2018-2020 from this company from ASX 300 firms (https://www.asx300list.com/). The announcement can be a new product, a scandal, an earnings announcement, a change in strategy, etc. What is your expectation of the market reaction to the announcement, good or bad news?

Please download the daily stock prices from one month before to one month after the announcement date, and compute the cumulative holding period returns and plot them in a graph.

Cumulative Holding period returns = [(1+r₁)(1+r₂) (1+r₃)( 1+r_t)]-1

Note: The holding period return is NOT the usual weekly return you calculated

Discuss the following aspects: Does the stock price react quickly or slowly to the news announcement? How does it relate to the theory we learned in class? (2 marks)

Choice of Company

You can choose any company from ASX300 list that has been listed on the stock exchange for at least 3 years, and with positive earnings and positive dividend for the 2019/2020 financial year.

My choice is Telstra My choice is Telstra My choice is Telstra My choice is Telstra My choice is Telstra My choice is Telstra My choice is Telstra My choice is Telstra My choice is Telstra My choice is Telstra My choice is Telstra My choice is Telstra My choice is Telstra