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Individual assignment questions on returns and risk

πŸ“… February 4, 2026 ✍️ Cpapers ⏱ 2 min read

FIN201: Corporate Finance – Individual Assignment

Unit Details

Total Weight: 40%

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Instructions

  1. Address all requirements fully. Late work attracts penalties.
  2. Submit your answer as a PDF file via Moodle.
  3. Display all calculations and clearly mark final answers. Step marks apply.
  4. Plagiarism or copying results in zero marks.
  5. Name the file as FIN201_AT1_FirstName_Surname_StudentNumber, e.g., FIN201_AT1_Jane_Doe_20260000.

Questions

Answer the following four questions. Each carries 10 marks.

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  1. Compute the return for each investment, including capital gain/loss and dividend.
    • A portfolio closes the year at $13.45 million after dividends of $280,000. It started at $12.78 million.
    • The All Ordinaries Index finished at 5820, starting from 5350.
    • A BHP share began at $24.60 and ended at $28.15, with a $1.25 dividend.
  2. A perpetuity starting payments in year 4 equals $110,000 received in 15 years. Risk is equivalent, with j2 = 10% pa. Find the annual cash flow, rounded to nearest dollar.
  3. Explain how empirical evidence on market efficiency affects:
    • Technical analysis.
    • Fundamental analysis.
  4. Assets A and B have standard deviations of 11% and 7%. A portfolio holds 40% A and 60% B. Calculate standard deviation for correlations of:
    • 1
    • 0.4
    • 0
    • -1

    Interpret the results.

For the portfolio return, divide the net gain by the initial value after adding dividends. The index return uses the percentage change from start to end. Share return combines price appreciation and dividend yield. Perpetuity value discounts future payments at the given rate. Market efficiency suggests prices reflect information, limiting technical analysis gains. Fundamental analysis faces challenges in outperforming if markets are strong-form efficient. Portfolio risk decreases with lower correlations due to diversification. Calculations show variance reduction when assets move oppositely (Fama and French, 2018, https://doi.org/10.1016/j.jfineco.2018.02.012).

References

  • Fama, E.F. and French, K.R., 2018. Choosing factors. Journal of Financial Economics, 128(2), pp.234-252. https://doi.org/10.1016/j.jfineco.2018.02.012
  • Kozak, S., Nagel, S. and Santosh, S., 2018. Interpreting factor models. The Journal of Finance, 73(3), pp.1183-1223. https://doi.org/10.1111/jofi.12604
  • Lettau, M. and Pelger, M., 2020. Factors that fit the time series and cross-section of stock returns. The Review of Financial Studies, 33(5), pp.2274-2325. https://doi.org/10.1093/rfs/hhz120
  • Bali, T.G., Cakici, N. and Fabozzi, F.J., 2022. Factor momentum in alternative investments. Journal of Portfolio Management, 48(5), pp.45-63. https://doi.org/10.3905/jpm.2022.1.169

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