Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You are working as an investment analyst in the research department of IPA. Investments. The head of the research department has provided you with monthly
You are working as an investment analyst in the research department of IPA. Investments. The head of the research department has provided you with monthly historical data on the stocks of Scales Corp. (SCL.NZ), Sanford (SAN.NZ), and the NZX50 index as well as the risk- free rate (90-day Bank-bill); and he has asked you to analyze the data for the purpose of investments in the New Zealand stock market. In particular, he wants you to do the following: Part A: Quantitative Research (15 marks) a) Determine what the average returns and standard deviations of returns per annum based on the historical data are for the two stocks and NZX50 index. (6 marks) b) Use regression analysis to evaluate the market risk (beta) and the intercept (alpha) of the two stocks. Also, report the beta and alpha for the NZX50 index. (5 marks) Give an interpretation of your findings from the regression analysis, particularly the estimated beta and alpha values of the two stocks and their implications on the stock price. (4 marks) c) Part B: Security Market Line (10 marks) Suppose that you use the three average returns per annum calculated in Part (a) as the estimates of the expected returns for the two stocks and market portfolio, respectively. Suppose that the risk-free rate is 0.8% per annum. You are working as an investment analyst in the research department of IPA. Investments. The head of the research department has provided you with monthly historical data on the stocks of Scales Corp. (SCL.NZ), Sanford (SAN.NZ), and the NZX50 index as well as the risk- free rate (90-day Bank-bill); and he has asked you to analyze the data for the purpose of investments in the New Zealand stock market. In particular, he wants you to do the following: Part A: Quantitative Research (15 marks) a) Determine what the average returns and standard deviations of returns per annum based on the historical data are for the two stocks and NZX50 index. (6 marks) b) Use regression analysis to evaluate the market risk (beta) and the intercept (alpha) of the two stocks. Also, report the beta and alpha for the NZX50 index. (5 marks) Give an interpretation of your findings from the regression analysis, particularly the estimated beta and alpha values of the two stocks and their implications on the stock price. (4 marks) c) Part B: Security Market Line (10 marks) Suppose that you use the three average returns per annum calculated in Part (a) as the estimates of the expected returns for the two stocks and market portfolio, respectively. Suppose that the risk-free rate is 0.8% per annum
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started