Groupbased assignment for Financial data analysis Essay

Groupbased assignment for Financial data analysis - Essay ExampleThe report analyses the risk and return of these two companies. Then the terms structure of these companies is compared. The first part of the report focuses on calculating the means and the variances of the two companies. Mean provides a measure of average return to investors while the variance and hence the standard deviation predict risk. The second part of this report focuses on calculating the cost of capital for DGSE COMPANIES INC to aid the appraisal of a project under scrutiny.The cost of capital is the luck cost of an investment that is, the rate of return that a company would otherwise be able to earn at the same risk level as the investment that has been selected. CAPM will be used as the model. The equity cost of capital is found by accumulating the data relating to the companys and market returns at different points in time.The calculations yield a mean value of 0.026557 for DGSE COMPANIES INC and 0.014395 for earth SERVICE ENTRP GRP INC. These figures can be interpreted as for an investor investing $1 in DGSE COMPANIES INC and $1 in PUBLIC SERVICE ENTRP GRP INC, after a month he will get an average holding period return of 2.6 cents and 1.4 cents on his investments respectively.The variance and the closely related Standard Deviation are measures of dispersions, which indicate how the possible values are spread around the mean and are an indicator of risk. For the purpose of calculations, the sideline formula is used for variance As per the calculations, the monthly variance for DGSE COMPANIES INC is 0.0401 (4.01 %) and for PUBLIC SERVICE ENTRP GRP INC is 0.0050 (0.5%). The square roots of these figures give the monthly standard deviation which equals 0.200 (20%) and 0.0707 (7%), respectively. The Variance is indicative of volatility, hence the risk. It indicates how risky the investment is. A Comparison of risk and return of the two companies will give a clear idea.Table 1. fin d - RETURN RELATIONSHIPS.NoCompany NameRisk (%) VarianceReturn (%) - Mean1DGSE COMPANIES INC4.012.62PUBLIC SERVICE ENTRP GRP INC0.51.4The famous phrase higher(prenominal) the risk, higher the return holds well in our case.Chart 1Source PrimaryTable 2. YEAR WISE RETURN COMPARISONYEARDGSEPUBLIC19970.09320.021219980.04180.027019990.0895-0.005820000.04490.04012001-0.01880.00342002-0.0849-0.014220030.08060.031820040.01990.02022005-0.02690.022920060.02610.0063Chart 2Source PrimaryCALCULATION OF MINIMUM VARIANCE PORTFOLIOS.NoCompany NameRisk (%) VarianceReturn (%) - Mean1DGSE COMPANIES INC4.012.62PUBLIC SERVICE ENTRP GRP INC0.51.4The total portfolio return considering equal proportion of each companies share is(0.5)*2.6 + (0.5)*1.4 = 2%By Trial and error method, the minimum variance portfolio is arrived at respective