Question

Client's Investments: 1. Your client is closely following a publicly listed Australian company, however your client does not have the requisite skills to evaluate the company and, as such, has provided you with the following information. Your client indicates that the company is closely integrated with the Australian economy and that he is happy for you to use the rates of return for the Australian economy as a whole in the evaluation process You have researched the following returns and other characteristics for this company: Australian Treasury bills currently pay a return of 3% pa Australian stock market return over the same period has averaged 8% pa. Australian stock market standard deviation of returns is 13% p.a. Thi . . . is company's beta is estimated at 1.10 Historical returns and dividends (below) Dividend Price $15.62 S0.00 $12.77 S0.80 $11.96 S0.00 $14.08S0.85 $14.45 S0.00 $15.82S0.95 $17.31S0.00 $24.01$1.20 Y ear 2010 2011 2012 2013 2014 2015 2016 2017 Using the above information, identify whether it is a good idea, for your client, to invest in this company. Explain your reasoning for your decision.

Answer 1

S.No.	Year	Price	Dividend	Change in Price	Total Return	Deviation	Deviation^2
						Actual Return-Average Return
1	2010	15.62	0		0	-1.52	2.3104
2	2011	12.77	0.8	-2.85	-2.05	-3.57	12.7449
3	2012	11.96	0	-0.81	-0.81	-2.33	5.4289
4	2013	14.08	0.85	2.12	2.97	1.45	2.1025
5	2014	14.45	0	0.37	0.37	-1.15	1.3225
6	2015	15.82	0.95	1.37	2.32	0.8	0.64
7	2016	17.31	0	1.49	1.49	-0.03	0.0009
8	2017	24.01	1.2	6.7	7.9	6.38	40.7044
	Total				12.19	0.03	65.2545
	Average				1.52
	Standard Deviation=		√(Actual return-average return)^2
				N
		=	√65.2545/8
		=	√8.1568125
		=	2.856013
Conclusion:- This stock not worth to invest due to low return.