Your Aunty May (Mei) has some savings which she wants to invest in shares

Your Aunty May (Mei) has some savings which she wants to invest in shares. She has asked for your advice because she knows you are doing a finance unit in your university degree. Aunty thinks you are brilliant and so wants to invest all her savings in shares of the company for which you work (that is, the one assigned to your for this assignment).

Your Aunty is risk averse and from your study you know that investing in only one asset is risky. You decide you need to explain this to Aunty. You approach this task as follows:

1. Calculate the monthly returns for your (first assigned) company’s shares for the 12 months ending 30th June 2016. You should calculate the capital gain/loss yield only; that is, ignore dividends. Get the necessary share price data from DatAnalysis. (2 marks)
2. Calculate the monthly returns on the S&P/ASX 200 index during the same period. Get the necessary share price index data from statistical table F7 available for download from the RBA website. (1 mark)
3. Calculate the average monthly return and standard deviation for the period for both your company and the market index. (2 marks)
4. Explain the concept of diversification to Aunty. In doing so, you should also explain and refer to relevant figures from parts 1 to 3 to illustrate. (3 marks)
5. Identify and discuss two systematic and two unsystematic risk factors impacting on your company. Your discussion should be aimed at explaining systematic risk and unsystematic risk to your Aunty using example risk factors relevant to your company. One of the four risk factors should be drawn from news released about your company. (4 marks)
6. Source a current beta coefficient for your company from DatAnalysis. Explain to your Aunty what it means and give an example, assuming the expected market return is forecast to fall by 5% in the coming year. (2 marks)

Your submission for this task should not exceed three A4 pages. Provide an answer to each part in the order above. Ensure you fully reference all sources of data and information you use in your assignment.

Marks for this task will be awarded for each part as provided above. In addition to the marks for parts 1 to 6, 1 mark will be allocated for effective communication and referencing.

Marks for parts 1 and 2 will be awarded for correct data and numerical analysis. Marks for part 3 will be awarded for correct numerical analysis. Marks for part 4 and 5 will be awarded for a student’s ability to correctly and clearly explain the concepts in their own words and to illustrate them by application to real world figures/examples. Marks for part 6 will be awarded for a student’s ability to correctly and clearly explain the concept in their own words and to apply it to an example.