Drawing on expectations from theory and incorporating the overall context of your chosen company, interpret and discuss the risk and return measures from parts 2a and 2b. for company Breville (BRG) Yield to maturity of a 10 year Australia Government bond on 1 April 2020 = 0.70 % Expected return of company share = 0.788 % ( hypothetical company with a beta of 1.60 ) Bi = 0.83 ( BRG most recent five years ) Expected return of company share =0.74565 % Portfolio weight = 70% and 30% So portfolio beta = 0.7*0.83 + 0.3*1.6 = 1.061 Portfolio return as per CAPM = 0.70 + 1.061*5.5 = 5.8355 + 0.70 = 6.5355

  

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Table 1: Case company data (hypothetical except where noted) Harvey Norman (HVN) $15,897.00 $536.00 Payment per month Annual total revenue ($millions)¹ Annual growth in total revenue² Loan A (APR, compounding frequency) Loan B (APR, compounding frequency) Loan C (APR, compounding frequency) Adairs Breville (BRG) (ADH) $4,359.00 $2,050.00 $760.00 10.70% 3.93%, monthly 4.00%, semi- annually 3.91%, daily ³ $1,540,000 5.15% $344.40 $1,111.50 15.50% 3.02%, semi- annually 2.85%, monthly 2.95%, quarterly 4.35% $956.60 $2,234.10 $268.00 8.10% 4.90% 2.48%, quarterly annually $2,910,000 $9,950,000 2.45%, daily³ 2.52%, semi- Property cost 6 year bond annual coupon rate 6 year bond current price 4 year bond required rate of 3.40% return ¹ Data from S&P Capital IQ for the company's most recent financial year. 2 Most recent 5 year historical CAGR from S&P Capital IQ Assume a 365-day year Nick Scali (NCK) 3.95% 12.40% 4.80% 4.26%, semi- annually 4.25%, quarterly 4.24%, daily³ $760,000 4.90% $1050.50 $980.95 4.10% Beacon Lighting (BLX) $891.00 $247.70 9.90% 5.45%, monthly 5.50%, semi- annually 5.40%, daily³ 5.85% $922.00 Super Retail (SUL) $11,500.00 5.80% $2,711.40 5.97%, quarterly $1,650,000 $840,000 5.30% 6.00%, semi- annually 5.95%, monthly 4.55% $1,077.00 3.90% Table 1: Case company data (hypothetical except where noted) Harvey Norman (HVN) $15,897.00 $536.00 Payment per month Annual total revenue ($millions)¹ Annual growth in total revenue² Loan A (APR, compounding frequency) Loan B (APR, compounding frequency) Loan C (APR, compounding frequency) Adairs Breville (BRG) (ADH) $4,359.00 $2,050.00 $760.00 10.70% 3.93%, monthly 4.00%, semi- annually 3.91%, daily ³ $1,540,000 5.15% $344.40 $1,111.50 15.50% 3.02%, semi- annually 2.85%, monthly 2.95%, quarterly 4.35% $956.60 $2,234.10 $268.00 8.10% 4.90% 2.48%, quarterly annually $2,910,000 $9,950,000 2.45%, daily³ 2.52%, semi- Property cost 6 year bond annual coupon rate 6 year bond current price 4 year bond required rate of 3.40% return ¹ Data from S&P Capital IQ for the company's most recent financial year. 2 Most recent 5 year historical CAGR from S&P Capital IQ Assume a 365-day year Nick Scali (NCK) 3.95% 12.40% 4.80% 4.26%, semi- annually 4.25%, quarterly 4.24%, daily³ $760,000 4.90% $1050.50 $980.95 4.10% Beacon Lighting (BLX) $891.00 $247.70 9.90% 5.45%, monthly 5.50%, semi- annually 5.40%, daily³ 5.85% $922.00 Super Retail (SUL) $11,500.00 5.80% $2,711.40 5.97%, quarterly $1,650,000 $840,000 5.30% 6.00%, semi- annually 5.95%, monthly 4.55% $1,077.00 3.90%

Answer rating: 100% (QA)

The risk and return measures in parts 2a and 2b provide insights into the expected returns and risk profiles of the case company Breville BRG and a hypothetical company with a beta of 160 In part 2a t... View the full answer