Below is the monthly share price data for Australian mining giant BHP for the 2018 calendar year (source: https:// au.finance.yahoo.com/quote/BHP.AX).

Date Open Close Dividends (100% Franked)
Jan 29.57 30.2
Feb 30.2 30.5
Mar 30.5 28.21 0.705852
Apr 28.21 30.95
May 30.95 32.79
Jun 32.79 33.91
Jul 33.91 34.86
Aug 34.86 33.21
Sep 33.21 34.63 0.855978
Oct 34.63 32.21
Nov 32.21 30.69
Dec 30.69 34.23

 

i. Calculate the 2018 monthly returns (in both $ and %) for BHP.

ii. Calculate the average monthly return (%) for BHP.

iii. Using the data provided calculate the annual holding period return (in both $ and % terms) for an international (non-Australian) shareholder of BHP.

iv. Calculate the annual holding period return (in both $ and % terms) for an Australian resident shareholder of BHP.

v. Using the monthly data (below) for the Australian All Ordinaries share price index (Source: https://au.finance.yahoo.com/ quote/^AORD) calculate the monthly returns (%) for the Australian share market (MKT) during 2018.

Date Open Close
Jan 6146.5 6117.3
Feb 6117.3 5868.9
Mar 5868.9 6071.6
Apr 6071.6 6123.5
May 6123.5 6289.7
Jun 6289.7 6366.2
Jul 6366.2 6427.8
Aug 6427.8 6325.5
Sep 6325.5 5913.3
Oct 5913.3 5749.3
Nov 5749.3 5709.4
Dec 5709.4 5783.3

 

vi. Calculate the average monthly return (%) for the MKT (ALL ORDS).

vii. Calculate the annual holding period return (in % terms) for the Australian share market (MKT) (as proxied by the All Ords index) during 2018.

viii. Using Excel (XL) prepare a line graph comparing the monthly returns for BHP and the return on the Australian (MKT).

ix. Calculate the risk for 2018 as measured by standard deviation of both BHP and the MKT.

x. According to Yahoo Finance BHP Ltd has a Beta of 1.12. In terms of share investment, define what Beta represents. What does BHP’s Beta of 1.12 mean? How risky is it?

xi. The average return on the market (MKT) in Australia for the past 10 years has been 9.55% (Source: https://www.asx.com.au). The yield on Australian 10 year treasury bonds is currently 2.29%. Using these as proxies for the Return on Market (MKT) and Risk Free Rate (Rf), combine them with the BHP Beta (above) and calculate the return expected for BHP using the Capital Asset Pricing Model (CAPM).

xii. Using the CAPM data from the previous question create an XL scatter plot graph to plot the Security Market Line (SML) using the Risk Free Rate, Return on Market, and BHP as data points.

xiii. Recreate the graph from above but this time also include the actual 2018 returns for BHP and the MKT as previously found (using the same beta measures).

xiv. Based on your CAPM findings construct a portfolio made up of 40% BHP and 60% MKT. Calculate the estimated return and β for this portfolio.

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