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Your supervisor has requested that you consider Cronox Industries or Zealous Incorporated. For the period 2016 2021, the share prices and dividends of the two
Your supervisor has requested that you consider Cronox Industries or Zealous Incorporated. For the period 2016 2021, the share prices and dividends of the two companies, as well as the returns on the Ghana Stock Exchange, are shown below.
Cronox Industries | Zealous Incorporated | ||||
Year | Stock price | Dividend (GH) | Stock price | Dividend (GH) | GSE Returns (Market Returns) |
2016 | 7.62 | - | 55.75 | - | - |
2017 | 12 | 0.90 | 60.00 | 2.25 | 0.07 |
2018 | 10.75 | 0.95 | 57.25 | 2.50 | 0.12 |
2019 | 17 | 1.00 | 48.75 | 2.75 | 0.08 |
2020 | 15.75 | 1.06 | 52.30 | 2.90 | 0.23 |
2021 | 17.25 | 1.15 | 48.75 | 3.00 | 0.18 |
- Based on your understanding of Risk and Return in Financial Management, explain to your supervisor what portfolio means in simple terms and why he should heed his son's advice.
- Use the data given to calculate the annual returns for Cronox, and Zealous using 2016 as the base year.
- Compute the average returns (Arithmetic Average) for each of the stocks over the five-year period (2017-2021)
- Calculate the risk (standard deviation of returns) for both Cronox and Zealous.
- Calculate the coefficient of variation for both companies
- Compare the two companies regarding risk and returns and advise your supervisor on which one to invest in.
- Calculate the covariance and the correlation coefficient between the two stocks
- Assuming your supervisor wants to invest the same amount in each of the stocks, what will be his portfolio risk and portfolio return
- Compute the beta for both Cronox and Zealous
- Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is riskier? Explain.
- Based on your knowledge of the market beta, do you think your supervisor will be adequately compensated for the level of risk he is willing to assume?
- Assuming the risk-free rate is 5%, what is the expected rate of return using the CAPM?
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