The Performance of the MYER Company - Report Example

A. Table of expected return for MYER and market return Date All Ordinaries Index MYER Market Returns MYER Returns 2009 4882.7 $2.13 0.355457 0.059242834 2010 4846.9 $2.26 -0.4717751 -0.471775109 2011 4111 $1.41 0.24419696 0.244196961 2012 4664.6 $1.80 0.32850407 0.328504067 2013 5353.1 $2.50 0 0 2014  5388.6  $1.40 0 0     Expected Return 0.08 0.03     Risk -0.001 -0.7 B. The performance of MYER against the market About MYER limited This is fashion style departmental store in Australia listed in the ASX stock market with its code as MYR. The business is one the Australia largest store that deals in fashion style as well as clothes. The above trend returns and performance of MYER is below those of the market since it is evident that the returns from MYER is 0.03 while for the market is 0.08.The volatility rate for MYER is 0.7 while for the market is -0.001 which signify that the security risk for MYER is volatile and thus the stock is under performing in the market. The dissimilar in the historic return between the market and the MEYER return is due to the growing threat from rival firms and local brands that produce the product in the market which leads to reduction the level of sales and stock return in market as well as. Also, business discontent in their yearly earning consequential from fall down in projection that might become a takeover target for the potential investors. MYER is putting into practice a believable strategic plan but external pressure intimidates it. Rational investor will have same information of the market performance and thus thee non-existence of arbitrage chances. the market balance ensures that each investor in the market depict similar market portfolio hence an effective portfolio is holding market returns since they are ;less volatile and susceptible to high market value of them return. Nevertheless, the approximation of systematic risk is misleading where the wrong portfolio is selected. The correlation between risk and return depict a positive trend because it can be observed that where there is low volatility rate, the low returns will be observed and vice versa which implies that an aggressive investors should therefore consider investing a risky portfolio since they carry huge returns inform of profits which therefore implies that to maximize the risky security with high returns, an investor should consider holding portfolio of securities (coefficient, 2003). MYER limited is affected by the business situation and its returns is as well as impacted by external and internal factors. The shares prices of the company are overvalued and consequently it is volatile. These aspects make the business situation more volatile since threat from rival companies is increasing hence the firm depict diverse trend in stock returns unlike those of the market return. The trait of the market traders significantly impact the price and hence making it informational in efficient. the appraisal of risk and return of portfolio is made using the mean-variance methodology as well as the assessment of the portfolio return using the regression model inclusive of the explanation of the data criterion rational of the information as well as the worked out outcome, the conclusion is supplied with concern for the assumption as well as the restraints it carries in concluding on the relevance of the security based on its volatility and return. C. Investment performance of MYER The stock performance of MYER depict an rising tendency and as a result, means that investment and capital base for the business is improving which therefore makes the return on investment for the business viable. The net effect is that there will be improved business performance that will attract investors in to the business and if care not taken, the flock of investor to buy the MYER return will lead to overvaluation of the stock return which in turn implies that the stock price will reduce in the stock market. The expected return for MYER limited is as observed from the graph depict a value of 1as well as the volatility rate is 0.4 implying that there is less risk to invest stock due to minimal variability of the return as observed (William Megginson, 2008). The business therefore is ideal to investors due to less risk and positive returns. In this regards, an investor should consider investing in this company due to an increasing trends in the value of the return combined with low volatility rate on security. Question two; the expected return and risk of the return and portfolio Australian Shares International Shares Property Australian bonds Australian .Notes E(R) 17% 21% 8% -7% -6% Σ -0.02 -2.3 -2.6 -12.3 -6.4 Portfolio X Portfolio Y Portfolio Z E(R) -13.3% 23.4% 24% Σ -1.6 0.2 -1.656 2. B relationship between risk and return There is a positive correlation between risk and return, which implies that the more the risky a stock is, the more the return is realized. In order to ensure that there is high return form a risky asset, one should consider holding portfolio of return since, it has a low component cost of capital with high return which as a result implies that holding a portfolio of security minimize the volatility of the returns (Stimes, 2011). Component cost of capital is ultimate in determining the worth of the firm because, cost of capital provides principle in arriving the cost of equity and of debt hence it will be simpler in estimating on whether to invest or not an investment project. The portfolio risk and return is appraised using the regressor model in the hypothesis holds that an inverse relation exists between returns and the volatility rate of an investment. There is existence of strong correlation involving risk and returns, which point out that the central of tendency is zero around the mean. The returns of the Australian shares and international shares portray a growing trend as observed below. It can be seen that, the more the expected return of a security is, the high the risk if the returns as denoted by the volatility rate. Australian Shares International Shares E(R) 17% 21% Σ -0.02 -2.3% 2. B (1.1) Define diversification This process of having a portfolio of return in diverse stock to reduce risk on investment. Stock diversify the investment risk is dissimilar division so as to make certain that sock returns and risk is reduced by holding a portfolio of diversified stock and thus the risk of handing single stock return (Ilmanen, 2012).Diversification therefore is the process of holding diverse stock in different sector so as to minimize investment risk. . The effect of Asset diversification and its impact on the portfolios The rationalization of selecting the portfolio as a decisive investment plan is the expected return. It is evident that the market expected is high with low volatility rate as observed in the table above. The effect of diversification and holding portfolios will lead to minimization of volatility rate and high returns. Therefore, it is depicted that portfolio return is preferred due to less security risk as observed by the rate of volatility with high returns. From the table below in ascertaining the level of portfolio risk, it can concluded that there is a little variance in terms of volatility between portfolio returns (Ilmanen, 2012).The highest return (24% portfolio z) portrays a volatility rate of 0.2% while the lowest portfolio x depict a return of -13% with a volatility rate of 1.6%. It can be observed that the correlation between the high portfolio and the low portfolio return portrays that there is existence of dissimilar between portfolio but one unique thing is evident, that there is an inverse relationship between risk and return and thus it can be observed that the higher the risk of a portfolio, the higher the returns.. Question two 2 c Portfolio x This a class of undertaking with small returns inform of profits as well as the investors are inclined to portray the behavior of a conservative investor due to less income and fear for risk and losing of cash due to loss on investment. in this regards, conservative investors will have large amount of cash at their disposal since, they spend less in investing on securities (Gedde, 2002).This group of investors are rarely willing to endure noticeable collapse of the market changes and are eager to give up entire of their important upside likelihood in relation to market so as to achieve the goal (Gedde, 2002). These groups of individual fear receiving a loss statement from their investment. In addition, many of them commands their portfolio with inflation adjusted income to pay the utilities. As a result, the saving ratio will be very high since they are reluctant to invest. High-risk returns are avoided and thus fulfilling their needs is not to achieve where the inflation is high due to market value of fixed income securities. Getting rid of the market risk is hard and thus conservative investors are considered average since, the amount of cash expended on the returns is less unlike cash withhold. Portfolio y This is a portfolio with little volatility hence the investors in this group will be average due to the fact they are in need of investing in a long term securities to secure the future life. An average in investor will thus hold equilibrium optimal securities and the class of the investors requires large number of securities as well as enhances the returns by way of realizing profit from investment. The risk and its mitigation are managed hence the equilibrium between profit and loss is the main goal of the investor in this category of the portfolio. Portfolio z This a type of portfolio that depict a high volatility with high return implying that investment in this type of portfolio commands extra cautious and make an informed decision. As a result, investor in these groups is highly aggressive and ready to take on investment risk. The right of investor in this type of portfolio is the aggressive investors because they command to sufficiently perform perfect in the security market as well as ought to comprehend that they are exposed to high stock volatility. The risk of the portfolio is that they can lead to more than half risk on investment depending on the economic situation and the might take long before realizing profit investment loss (Damodaran, 2012).The attribute of such kind of investor is that they tend to investment more in the economy and they are normally young and inclined to generate significantly huge worth of portfolio frequently from their realized investment income from other profitable venture. This group of investor’s investment huge amount of funds in order to secure the future life. Where there is a decline in market trend, they will loss huge amount of money because their investment plan is very risky and they frequently spend their funds in a risky asset in order to earn more by taking risky in investing volatile stocks. A risk averse investor therefore should take on risk by investing in those securities with high returns as much as their volatile rate is high as well as holding diversified asset in order to I, minimize the investment risk. Conclusion Investment risk is the risk that a company might fail to realize investment inform of profit from the security venture invested. In order to minimize risk of a return investor should thus consider holding a portfolio of securities in order to diversify the degree of risk. In this regards, risky ventures will have been minimized since, according to weighted average cost of capital (WAAC), it depicts that the returns of a portfolio would provide a higher value with lower cost of capital unlike a single security investment that will depict a return with higher cost of capital with lower value which is too risky to invest in. It can therefore be concluded that the relation between risk and return is that of an inverse proportion since, the higher the risk of a return, the high the returns and consequently, to capitalize on this and at the same time reducing the risk from the investment, an investor should consider holding a portfolio of securities. Component cost of capital is ideal in ascertaining the value of the firm since, cost of capital provides References coefficientl, B.D.I.b.o.e.t.b.2003. vol 57, pp. 47-53.. Investment Analysts Journa, vol 57, pp.pp. 47-53. Damodaran, A.2012. Investment Valuation: Tools and Techniques for Determining. New york: Cengage Learing. Gedde, R., 2002. Valuation and Investment Appraisal - Page 75. Ilmanen, A., 2012. Expected Returns on Major Asset Classes. Stimes, P.C., 2011. Equity Valuation, Risk and Investment: A Practitioner's. William Megginson,S.2008. Introduction to Corporate Finance - Page 289. Appendices =+LN(M2/M1) Date All Ordinaries Index MYER Market Returns MYER Returns 2009 4882.7 $2.13 0.355457 0.059242834 2010 4846.9 $2.26 -0.4717751 -0.471775109 2011 4111 $1.41 0.24419696 0.244196961 2012 4664.6 $1.80 0.32850407 0.328504067 2013 5353.1 $2.50 0 0 2014  5388.6  $1.40 0 0     Expected Return 0.08 0.03     Risk(Coefficients) -0.001 -0.7 MYER returns and Graph MYER Returns 2009 $2.13 2010 $2.26 2011 $1.41 2012 $1.80 2013 $2.50 2014  $1.40 The expected return of MYER and Market =+LN(R2/R1 =+LN(R2/R1) =+LN(R2/R1 =+LN(R2/R1 Year Australian Shares Returns International Shares Returns Property Returns Australian Bonds Returns Australian T-notes Returns Portfolio X Returns Portfolio Y Returns Portfolio Z Returns 1995 20.20% -1.71% 26.50% -136.02% 12.70% 13.25% 18.60% -44.66% 8.00% -5.13% 16.56% -20.58% 10.59% 22.31% 20.59% -3% 1996 14.60% -17.96% 6.80% 181.36% 14.50% 33.65% 11.90% 2.49% 7.60% -30.54% 13.48% 13.58% 9.15% 22.31% 12.24% 62% 1997 12.20% -5.04% 41.70% -24.62% 20.30% -12.02% 12.20% -25.01% 5.60% -9.35% 15.44% -14.77% 8.39% 22.31% 22.67% -17% 1998 11.60% 32.78% 32.60% -62.21% 18.00% 0.00% 9.50% 0.00% 5.10% -1.98% 13.32% -289.04% 7.27% 22.31% 19.18% -44% 1999 16.10% -149.79% 17.50% -194.59% -5.00% 0.00% -1.20% 0.00% 5.00% 21.51% 0.74% 283.80% 2.76% 22.31% 12.30% -70% 2000 3.60% 103.16% 2.50% 0.00% 17.80% -19.82% 12.00% -78.02% 6.20% -15.68% 12.64% -22.83% 8.52% 22.31% 6.11% -17% 2001 10.10% 0.00% -9.40% 105.14% 14.60% -21.29% 5.50% 47.00% 5.30% -9.91% 10.06% -41.85% 6.27% 22.31% 5.15% 0% 2002 -8.10% 0.00% -26.90% 0.00% 11.80% -29.33% 8.80% -107.61% 4.80% 2.06% 6.62% 17.68% 6.30% 22.31% -9.76% 0% 2003 15.90% 55.15% 0.00% 0.00% 8.80% 115.75% 3.00% 84.73% 4.90% 13.35% 7.90% 90.46% 4.91% 22.31% 9.71% 85% 2004 27.60% -26.85% 10.80% 48.84% 28.00% -80.65% 7.00% -18.81% 5.60% 1.77% 19.52% -52.56% 8.12% 22.31% 22.64% -21% 2005 21.10% 16.96% 17.60% -35.83% 12.50% 100.06% 5.80% -62.65% 5.70% 5.13% 11.54% 54.19% 6.40% 22.31% 18.33% 23% 2006 25.00% -32.85% 12.30% 0.00% 34.00% 0.00% 3.10% 12.14% 6.00% 12.52% 19.84% -249.30% 8.22% 22.31% 22.99% -121% 2007 18.00% 0.00% -1.60% 274.49% -8.40% 133.75% 3.50% 144.86% 6.80% 11.12% 1.64% 0.00% 4.62% 22.31% 6.84% 0% 2008 -40.40% 0.00% -24.90% 0.00% -32.00% 0.00% 14.90% -217.07% 7.60% -77.54% -14.92% 0.00% 5.10% 22.31% -34.07% 0% 2009 39.60% -251.57% 5.00% 0.00% 7.90% 0.00% 1.70% 126.11% 3.50% 22.88% 11.76% -150.92% 3.58% 22.31% 22.88% -297% 2010 3.20% 0.00% -0.70% 202.44% -1.10% 31.02% 6.00% 64.19% 4.40% 12.78% 2.60% -33.49% 4.17% 22.31% 1.17% 0% 2011 -10.50% 0.00% -5.30% 0.00% -1.50% 0.00% 11.40% -67.40% 5.00% -10.54% 1.86% 235.50% 5.63% 22.31% -7.14% 0% 2012 20.26% -0.30% 14.55% 130.45% 33.06% -154.25% 5.81% -217.51% 4.50% -40.55% 19.60% -101.12% 7.62% 22.31% 21.11% 27% 2013 20.20% -44.85% 53.63% -96.66% 7.07% 45.11% 0.66% 222.38% 3.00% -10.54% 7.13% 28.28% 2.94% 22.31% 27.60% -62% 2014 12.90% 0.00% 20.40% 0.00% 11.10% 0.00% 6.10% 0.00% 2.70% 0.00% 9.46% 0.00% 4.22% 22.31% 14.79% 0% E(R)   17%   21%   8.2%   -7.   -5.72%   -13.32%   23.49%   24%   σ   -0.02   -2.3   -2.26   -12.23   -6.391364485   -7.7563454   0.2231436   -1.589377 Read More