The Performance of MYER against the Market - Assignment 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 0.356 0.0592 2010 4846.9 $2.26 -0.4718 0.4717 2011 4111 $1.41 0.2442 0.2442 2012 4664.6 $1.80 0.3285 0.3285 2013 5353.1 $2.50 0 0 2014  5388.6  $1.40 0 0     Expected Return 0.08 0.029     Risk -0.0098 -0.697 B. The performance of MYER against the market Introduction MYER is Australia’s largest fashion style departmental store in that deals in clothes design and fashion. The company is registered in ASX under the code MYR. The comparison of market return and those of the MYER as well as the risk of the return is depicted in the table above. It is evident that the market risk and return depict a value 0.098 and 0.08 of respectively while for Myer return, the volatility of the stock and stock return is 0.697 0.029 respectively. This is implies that the volatility for the MYER stock return is riskier hence the stock will create high returns. The difference between the past stock return and the market return is because of the improving risk from the fierce completion that manufactures the same product and sells in the same local market. The impact of the increasing threat of competition is that the sales margin will reduce leading to reduction worth of the stock price in the market. Myer limited is impacted by the business environment as well as the returns are influenced by both internal and external factors such as the effect of inflation and the financial distress. The price and worth of the stock is overvalued and thus it is riskier. These features make the business more risk because the fierce completion is growing and thus the firm portray a different tendency in stock returns unlike those the market returns. The behavior of the investor in the market significantly affect the value and thus making it informational and summary is provided with the need for hypothesis as well as the limitation it carries including on the significance of the stock on the basis of its volatility and returns. The MYER tactical plan is significant but it is facing pressure from external factors. There is non-existence of arbitrage advantage of the other investor since, there is full access of information by every investor and thus the asymmetry guarantees that every stockholder in the market portray same market portfolio thus an efficient portfolio is having a diversified asset in order to minimize the risk of investment. This is because, holding a portfolio of assert will lead to reduction in volatility of security as well as improves the maximum return from investment. The link between the risk and return is that of an inverse association which implies that the higher the returns form a stock, the higher the volatility rate and thus rational investor musty therefore ensure that he make an invest in a high portfolio returns in order to capitalize on the returns. C. Investment performance of MYER The graph below depicts the stock performance for MYER .it is evident that the stock price is increasing due to improved business operation, which provides a signal that the business operation is enhanced. The consequence of the improved stock price is that it will flock investors to but the company security, which in turn, might lead to overvaluation of security in the stock price hence, might lead to a reduction in value of the stock. A rational investor should therefore consider investing in Myer security with other stock price of different firm in deferent sector in order to diversify the risk as well as increasing the level of return to be realized from investment. From the above trend in stock price of MYER limited, it can be observed that the stock price is improving which implies therefore that the investment is ideal as much as the risk in term of volatility rate is high. In this regards, investor must make an investment decision since, the trend in stock price is increasing which is evidently that the anticipated stock price will improvement the near future holding other factors constant such as improve economy and business performance. Question two; the expected return and risk of the return and portfolio Australian Shares International Shares Property Australian bonds Australian .Notes E(R) 16% 20% 7% -6% -6.7% Σ -0.098 -2. -3 -12 -6.2 Portfolio X Portfolio Y Portfolio Z E(R) -13% 23% 24% Σ -2 0.2 -1.2 2. B relationship between risk and return There is a constructive connection between risk and return since, the higher the risk of investment, the higher the volatility rate is observed by the value of variance of the returns. The portfolio risk and return is assessed by employing the CAPM (regressor model) since, the risk and return depict an inverse relation of an investment. There is presence of strong connection between risk and returns, implies that the distribution around the mean from line of best is zero in using the scatter graph to interpret the risk and return relationship. The link between risk and return is therefore clearly explained by the above graph since, it can be observed that the high the return of a stock, the higher the volatility rate it carries. In order to make certain that there is high return form a uncertain asset, one must deem holding portfolio of return in view of the fact that, it carries small component cost of capital with high return that end result means that holding a portfolio of security curtail the unpredictability of the returns. Component cost of capital is decisive in establishing the value of the firm for the reason that cost of capital provides principle in concluding at the cost of equity and of debt, thus it will be easier in approximating whether to venture or not an investment development. . Australian Shares International Shares E(R) 16% 20% Σ -0.98 -2.3% 2. B (1.1) Define diversification Diversification is an investment term, which implies that an investor will consider holding more than two asset of security in different sector inn order to minimize the investment risk. Diversification therefore is the process of holding diverse stock in different sector to minimize investment risk. The effect of Asset diversification and its impact on the portfolios The good reason for appreciating the portfolio returns as an important investment plan is the expected return of a portfolio. A portfolio expected return depict allow cost of capital with high return which implies investment in stock will earn more return since its volatility rate is low. The table above depict that the market return for stock is high with low risk on return. the impact of the stock diversification as well as holding portfolio create reduction of risk in returns and maximize the worth of the return in of profit. As a result, an investor will deem holding a portfolio of security to minimize investment risk as well as improve the net income. From the table below in determining the level of portfolio volatility, it can found that there is less variation by way of risk between the portfolio return. The maximum portfolio return is 24% with risk rate of 1.2 while for portfolio y ,it can be can be depict a return of 23% with risk of 0.3 while portfolio x has a return of 13% with volatility rate of Portfolio X Portfolio Y Portfolio Z E(R) 13% 23% 24% Σ 2 0.2 1.2 From the above graph analysis,it can be observed that the more the risk a return is,the hgier the return from invest which portray an inverse realtionship. In this regards an aggressive investor will earn more from this invest since he risk a lot investing in a volatile securities and thus to minimise such risk, an investor should consider holding a portfolio of security in order to minimise the risk on investment as well as capitalize on the volatile stock. Question two 2 c Portfolio x The stock in this portfolio depict a low returns from investment and thus the type of customer in this class will be the conservative investors since, investment in this portfolio depict a low return with less risk which correspond to the attitude of a conservative investor since, they tend to spend less and much at their disposal due to fear of losing much in an investment. They rarely undergo conspicuous collapse of market change and as well are less to give up every of their significant upside probability in relation to market in order to attain the objectives they tend to have large amount of cash at their disposal since they fear receiving the loss statement from their investment they as well as tend to avoid investment with high returns since they’re very volatile and incase of loss, an investment will incur great loss which they fear. It is inevitable to avoid market risk hence the conservative investors are deem average because the worth of cash devoted in the stock return is less as compared to cash at their disposal. Portfolio y The portfolio depict average returns with mild rate of volatility from investment. this is an indication that an average returns is expend from the is portfolio. the group of investor falling under this category are the average investor since their needs are long-term investment in order to safeguard their future life. In this regards an equilibrium investment will be observed in this group of investors in order to ensure that the risk and its mitigation is controlled to a reasonable point Portfolio z The right class of investor in this type of portfolio is the aggressive investors for the reason that they require to adequately execute perfectly in the security market and must understand that they are open to the elements of high stock volatility. This a type of portfolio which portray a high risk with high return implying that venture in this type of portfolio require extra vigilant and make an informed investment decision. Therefore, investor in these groups is highly aggressive and prepared to take on investment risk. Where there is a turn down in market tendency, they will loss enormous amount of money for the reason that their venture plan is highly volatile and they regularly use up their funds in uncertain asset to earn more by taking risky in investing volatile stocks. A risk loath investor consequently ought to invest in volatile securities since, they will guarantee of the maximum return and they ought to hold a diversified portfolio in order to minimize market risk. The risk of the portfolio is that van lead to more that 30% reduction amount of cash invested in volatile securities and might even takes more than one to recover to amount lost. In this regards an investment must be a risk take in this class of portfolio and to get rid of huge losses, the intend to investment in numerous diversified portfolio Conclusion It can therefore be concluded that the correlation between risk and return is strongly correlated as observed from the above graph which implies that to earn more form investment, a risk averse investor should consider investing in a risky asset since they depict high returns in order to earn m ore form risky asset, an investor must as well as consider investing a portfolio of asset so as to minimize the risk on investment as well as capitalize on returns. Investment risk is the risk that a firm may not succeed to realize investment inform of profit from the security venture invested. As per the weighted average cost of capital (WAAC), it portrays that the portfolio returns might creates high value with low cost of capital as compared to single stock investment due to asset diversification. 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 0.3555 0.0592 2010 4846.9 $2.26 -0.4718 -0.4718 2011 4111 $1.41 0.2442 0.2442 2012 4664.6 $1.80 0.3285 0.3285 2013 5353.1 $2.50 0 0 2014  5388.6  $1.40 0 0     Expected Return 0.089 0.029     Risk(Coefficients) -0.089 -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)   16%   20%   8   6.   -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