Statistics for Business and Finance BUS5SBF Assignment 2 Semester 1, 2015

| September 28, 2018

Statistics for
Business and Finance

BUS5SBF

Semester 1, 2015

Assignment 2

This
assignment is worth 20% of the total mark and should be submitted by Week 12 to
the LMS by electronic submission.

This is an individual
assignment. Plagiarism will be dealt with according to the University policy.

The
members of the teaching staff are NOT allowed to help you in any aspect of the
project. So we will not answer any questions directly related to the project,
except for those related to the clarification of the content.

Your
report need not take a formal report format. You can answer each
question below, with supporting Excel outputs (where applicable) included in
your report. Your answers should be clear and concise: unclear answers may be
penalized.

This
is a sequel to Assignment 1 where you analyse the return of an Australian
stock, in comparison with the return of a market portfolio. As such, you will
be using the same data set as in Assignment 1. That is, you will use the stock
with the number in the table (given in Assignment 1) which matches the last
digit of your student ID.

If you have your
data used in Assignment 1, you do not need to download the data again.

If
you do not have the data set you can follow the instructions given in
Assignment 1. Again, the holding period return should be used for Assignment 2.

If
you are using the return of the stock which does not match your student ID, you
will get zero mark for the assignment.

Answer all five
questions.

For
all hypothesis testing questions, state clearly the null hypothesis;
alternative hypothesis; level of significance you choose; distribution you use;
critical values; and decision rule.

Question 1: [10
marks: 8 + 1+ 1]

Test the null hypothesis that the
population mean of your stock return is equal to that of the market return,
against an appropriate alternative hypothesis.

1

State the assumptions under which the
test is valid.

Based on the outcome of the test,
explain whether your stock is more or less profitable than the market
portfolio; or whether they are equally profitable.

Question 2: [10
marks: 8 + 1+ 1]

Test the null hypothesis that the
population variance of your stock return is equal to that of the market return,
against an appropriate alternative hypothesis.

State
the assumptions under which the test is valid.

Based on the outcome of the test, explain
whether your stock is more or less volatile than the market portfolio; or
whether they are equal volatility.

Question 3: [10
marks: 2+2+2+2+2]

Report
a scatter plot between the stock return (Y-axis) and market return (X-axis)

Using the scatter plot, provide the
descriptive features of the relationship (direction and strength) between the
two in less than 50 words.

Report
and interpret the correlation coefficient.

Test the null hypothesis that the
population correlation is statistically zero against an appropriate alternative
hypothesis.

State
the assumptions under which the test is valid.

Run the simple regression between the stock return
(dependent variable) and market portfolio return (independent variable).

Question 4: [10
marks: 6 + 2 + 2]

Interpret the intercept and slope
estimates, paying attention to the profitability and riskiness of your stock in
comparison with the market portfolio.

Interpret
the value of R2.

Suppose you expect the market return in
the next month to be -5%, what is the expected return of your stock?

2

Question
5 [10 marks: 5+5]

Based on your findings from correlation
and regression analyses, provide a non-technical summary of the properties of
your stock, in comparison with those of the market portfolio, in less than 100
words.

Discuss possible limitations of your
correlation and regression analysis in less than 100 words.

Excel
Instructions

Excel
Instructions appear in the tutorial papers for Week 10 and 11.

You may also
find the following links useful:

http://www.excel?easy.com/examples/scatter?chart.html
http://www.excel?easy.com/examples/t?test.html
http://www.excel?easy.com/examples/f?test.html
http://www.excel?easy.com/examples/correlation.html

http://www.excel?easy.com/examples/regression.html

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