Assignment BE313 – Portfolio Analysis
Supplementary Coursework
Coursework (30 marks)
Part I:
Case:
You are a finance graduate and have just begun your job with an investment firm. Your
boss, John, is concerned about the risk of the investment that you are managing as well as
the potential return. More specifically, because the company holds a diversified portfolio,
John is concerned about the systematic risk of current and potential investments. One
position the company currently holds is shares in Coca-Cola Amatil Ltd. Coca-Cola
Amatil is the Australasia region’s anchor bottler of The Coca Cola Company. It
manufactures, distributes and markets carbonated soft drinks, still and mineral waters,
fruit juices, coffee and other alcohol-free beverages. It is known for bottling and
distributing the world-leading brands of Coca-Cola, Diet Coke, Coke Zero, Fanta, Sprite,
Powerade, Glacéau and Pump, as well as other trademark beverages of The Coca-Cola
Company. The company has a division that manufactures premium beers from the
SABMiller portfolio including Peroni Nastro Azzurro, Peroni Leggera, Grolsch, Pilsner
Urquell, Miller Genuine Draft and Miller Chill. The Pacific Beverages joint venture also
owns the Bluetongue premium beer brand.
Your investment firm currently uses a commercial data vendor for information on its positions.
Because of this, John is unsure exactly how the numbers provided are calculated. The
data provider considers its methods proprietary, and it will not disclose how share betas
and other information are calculated. John is uncomfortable with not knowing exactly
how these numbers are being computed and also believes that it could be less expensive
to calculate the necessary statistics in-house. To explore this question, John has tasked
you to do the following assignments.
Instructions to students:
1. Go to http://au.finance.yahoo.com and download the ending monthly share prices
for Coca-Cola Amatil Ltd (ASX code CCL) for the last 60 months. Be sure to use the
adjusted closing price to account for any share splits and dividend payments. Next,
download the ending value of the S&P/ASX All Ordinaries Index over the same
period. For the historical risk-free rate, go to the RBA website www.rba.gov.au and
find the Treasury cash rate interbank rate. Download this file. What are the monthly
returns, average monthly returns, and standard deviations for a Coca-Cola Amatil
share, the cash rate interbank, and the S&P/ASX All Ordinaries Index for this period?
2. Beta is often estimated by linear regression. A model often used is called the market
model, which is:
Rt – Rft = ai + ßi [RMt – Rft] + et
In this regression, Rt is the return on the share and Rft is the risk-free rate for the same
period; RMt is the return on a share market index such as the S&P/ASX All Ordinaries
Index; ai is the regression intercept and ßi is the slope (and the share’s estimated
beta). et represents the residuals for the regression. What do you think is the
motivation for this particular regression? The intercept, ai, is often called Jensen’s
alpha. What does it measure? If an asset has a positive Jensen’s alpha, where would it
plot with respect to the SML? What is the financial interpretation of the residuals in
the regression?
3. Use the market model to estimate the beta for Coca-Cola Amatil using the last 60
months of returns with the regression procedure in Excel®. Plot the monthly returns
on Coca-Cola Amatil against the index and also show the fitted line.
4. Compare your beta for Coca-Cola Amatil (ASX code CCL) to the beta you find on
http://au.finance.yahoo.com. How similar are they? Why might they be different?
NOTE: The work that do not follow the requirements specified below will be penalised.
Requirements
1. The total word count must be printed on the front page. There is a maximum limit
of 1,500 words ± 10%.
2. The work must be tidy and answers clearly stated.
3. You must present all relevant details and show clearly how results were obtained.
For instance, if you calculate returns like this ( Pt – Pt-1)/ Pt-1 then you need to
specify what Pt and Pt-1 are, and provide an example based on your data.
4. An equation editor must be used to type equations.
5. This must be your own work. The University may employ software to check for any
evidence of plagiarism.
6. You must include references if it is appropriate to do so. References are not
included in the word count.
7. You must make sure you reference your resources in a proper way to avoid
plagiarism. See http://online.essex.ac.uk/students/referencing-your-sources for more
information regarding referencing.
8. The assignment must be word processed, font Times New Roman or Arial, with a
font size of 12 and with lines double-spaced. All work should be spell-checked and
read carefully for typos before handing in.
8. Check that you have answered the question that is asked and that your response
provides a logical reasoned answer.
9. The bibliography should contain only those sources you have referenced in your
assignment. This does not mean that you should include all books/journals/internet
sites you have read to research your assignment.
10. Referencing in your assignment should take the following forms:
The structural approach of Gilbert (1989) demonstrated that two demand side
variables…..
The behaviour of primary commodity prices is particularly important to many
developing countries where a significant proportion of national income is generated
by a small number of primary products (see Cashin et al., 2000).
A good explanation of the concept of cointegration can be found in Engle and
Granger (1991).
These would be listed in the bibliography is follows:
Cashin, P., Liang, H. and C. McDermott (2000) How persistent are shocks to world
commodity prices?, IMF Staff Papers, 47, 177-217.
Engle, R.F. and C.W.J. Granger (1991) Long-run economic relationships: readings
in cointegration, Oxford University Press, Oxford.
Gilbert, C.L. (1989) The impact of exchange rates and developing country debt on
commodity prices, Economic Journal, 99, 773-84.
Note: The first and the third references are journal articles and the second is a book.
You are strongly advised to submit your work days prior to the actual deadline. You are
also advised to store draft work that you can overwrite as this avoids risk of missing the
deadline due to some unforeseen circumstances.
