UNIVERSITI TEKNOLOGI MARA (UiTM) KAMPUS SEGAMAT

FACULTY OF ACCOUNTANCY
BACHELOR OF ACCOUNTING (HONS.)

GROUP PROJECT

i-LEARN DIGITAL PRESENTATION

PREPARED BY:

NAME STUDENT ID

NUR ANIS NADHIRAH BINTI AZIS 2021120235

NUR SYUHADA BINTI SULAIMAN 2021101877

NURUL SAFIA SAFIRA BINTI NURULZAMAN 2021120163

PREPARED FOR: EN. MOHAMAD ALBAR BAKAR

GROUP : JAC2204C

SUBMISSION DATE : 19th DECEMBER 2021

INTRODUCTION

The first topic related to the group project is on Chapter 2 Risk and Return. This chapter
is to illustrate on how to get the expected return, variance and standard deviation on individual
securities and also the portfolio. Expected return is the return which investors are expected to
earn while variance and standard deviation is used to measure the risk of individual securities.
This chapter also has covariance and correlation which measure whether the return on one stock
is related to another stock. Positive correlation is when the return of two stocks are higher than
the average at the same time while both will be lower than average also at the same time. When
the economy is good, it is advisable to choose stocks that have positive correlation. Negative
correlation is when the return of one stock is higher than average while another stock is below
the average and vice versa. For example, Top Glove Corporation Berhad. When the economy is
not good because of the pandemic Covid 19, they are having higher revenue than other
industries. Last is zero correlation. It means the return on both stocks are not related to each
other. For question 1, the correlation is 0.5 which is positive correlation as it is the nearest to
positive 1.

There are 2 types of risks which are systematic risk and unsystematic risk. Systematic
risk is caused by external factors. For example, inflation, natural disaster, interest rates and
others. This type of risk cannot be controlled and cannot be eliminated. Next, unsystematic risk
is caused by internal factors such as employee strikes, higher operational cost and others. This
type of risk can be controlled and can be eliminated through the diversified portfolio.

Next topic related to this group project is on chapter 4 financing decision and efficient
market hypothesis. An efficient capital market is when the stock prices fully reflect all available
information in which if there is new information or announcement made, the stock prices will
rapidly adjust to the new information. The premise of an efficient capital market is the stock
prices fully reflect all available information and also fully incorporate public information. the
prices will adjust immediately to the public information. Next, the information spreads rapidly to
the public. The last premise is day to day price changes will follow random walk overtime. It
means the price is not predictable because the past information cannot predict the future price.
 There are 3 types of efficiency. Firstly, weak form market efficiency. In this form , the
security prices reflect information in the past and volume. Thus, cannot gain an abnormal return.
Second is semi strong form market efficiency. In this type of form, the security prices reflect all
publicly available information which includes historical price and volume information, public
accounting statements and also information found in annual reports. In this form, you can gain
abnormal returns because of the inside information. Last is strong form market efficiency. The
security prices reflect all information which include public and private information. Thus, cannot
gain abnormal return in this type of form.
BODY OF REPORT

QUESTION 1
a) Compute
i. Expected return and standard deviation of Stock Maju
Estimated return :

State of economy R : (Future price - current selling price)/ (current selling price x 100)

Recession (RM32 - RM40)/ (RM40 x 100) = - 20%

Normal (RM44 - RM40)/ (RM40 x 100) = 10%

Expansion (RM48 - RM40)/ (RM40 x 100) = 20%

Expected return of stock Maju

State of economy Probability Estimated Return Ř=PXR

(P) (R)

Recession 0.2 -0.2 0.2 x -0.2 = - 0.04

Normal 0.5 0.1 0.5 x 0.1 = 0.05

Expansion 0.3 0.2 0.3 x 0.2 = 0.06

TOTAL 0.07 @ 7%

Variance of Stock Maju

State of economy (R) (Ř) Variance = P (R M - ŘM)2

Recession -0.2 0.07 0.2 (-0.2 - 0.07)2 = 0.01458

Normal 0.1 0.07 0.5 (0.1 - 0.07)2 = 0.00045

Expansion 0.2 0.07 0.3 (0.2 - 0.07)2 = 0.0507

TOTAL 0.0201

Standard Deviation : √ 0.0201 : 0.1418 @ 14.18%

ii. Beta of Stock Maju and Stock Dinamik

β = Correlation Coefficient × Standard Deviation of Stock Returns Standard Deviation of Market

Returns

Stock Maju 0.64 x 0.0418/ 0.1 = 0.9

Stock Dinamik 0.2 x 0.15/ 0.1 = 0.3

b) Both standard deviation and beta measures the risk. Differentiate between the two
measurements in relation to Stock Maju and Stock Dinamik.

Standard deviation is used to measure the market volatility in an investment risk of a company.
The smaller the standard deviation, the less risky an investment will be and the higher the
standard deviation, the company will bear the higher risk. In this situation, stock of Dinamik will
have a higher risk which is 15% higher than Stock Maju where the risk is only 14.18%.

Beta is used to measure systematic risk. It measures the responsiveness of a security to

movements in the market portfolio. As beta increases, the systematic risk of the firm goes up,
and as beta decreases, the systematic risk will decline. Based on a comparison between Stock
Dinamik (0.3) and Stock Maju (0.9), Stock Maju has a higher systematic risk than Stock
Dinamik (0.3).

c) If Zekri is a risk averse investor, holding a well-diversified portfolio, advise Zekri on which
stock should be chosen.

- As a risk averse investor, Zekri should choose stock Maju as stock Maju has lower risk
compared to stock Dinamik. This is because the risk averse investor which is also known as
conservative investors is an investor that prefers outcomes with low uncertainty. As Zekri
holds a well diversified portfolio which means he will find that the risk affecting the
portfolio is wholly systematic. Unsystematic risk has been diversified away. He will always
go to lower risk as he is unwilling to accept volatility in his investment portfolios.
d) If Zekri decided to invest RM60,000 in Stock Maju and RM90,000 in stock Dinamik, compute
the expected return, standard deviation, and beta of this portfolio.

Weighted average

Stock Maju (60,000/150,000) 0.4

Stock Dinamik (90,000/150,000) 0.6

Expected return of portfolio

ŘP = XM ŘM + XD ŘD = 0.4 (7%) + 0.6 (9%)

= 2.8% + 5.4%
= 8.2%

Standard deviation of portfolio

σ2P = XM2 σM2 + 2XM XD σMD + XD2 σD2 = (0.4)2 (14.18)2 + 2 (0.4) (0.6) (106.35) + (0.6)2 (15)2
= 32.171584 + 51.048 + 81
= 164.219584
σP
= √164.219584
= 12.81%

Beta of portfolio

βP = XM βM + XD βD = 0.4 (0.9) + 0.6 (0.3)

= 0.36 + 0.18
= 0.54
QUESTION 2

Question : Fox Venture Bhd has announced its bid to acquire Sunny Bhd 6 months ago. The
proposed acquisition is part of Fox Venture Bhd 3 years expansion plan. The immediate impact
of the announcement is the share price unexpectedly dropped by 15%, surprising the
management of Fox Venture and market watchers. Today, Fox Venture Bhd announced that the
proposed acquisition had fallen through, and Fox Venture had to withdraw its acquisition
planning. The acquisition plan failed to obtain approval from US M&A Authority. There is a
drastic change to Fox Venture’s share price showing an increment of USD3.00 to USD 3.40. The
management Fox Venture Bhd is puzzled by the opposite price reaction of the takeover
announcement.

Required: “The opposite price reaction to the acquisition announcement is an indication of

market inefficiency”. Do you agree with this statement? Explain.

Answer : The market is efficient when the stock prices fully reflect all available information in
which if there is new information or announcement being made, the prices will rapidly adjust to
the new information. If it's good news, the price will increase and if it's bad news, the price will
decrease. Thus, we disagree with the statement stating that the opposite price reaction to the
acquisition announcement is an indication of market inefficiency as there is no delay response to
the share price after the announcement being made. Fox Venture Bhd announced its bid to
acquire Sunny Bhd 6 months ago and surprisingly the share price dropped by 15% due to the
announcement. the share price adjusted immediately after the public announcement was made.
Then , After 6 months, Fox Venture Bhd withdrew from the acquisition planning and
immediately the share price had a drastic change from USD3.00 to USD 3.40. Thus, the opposite
price reaction is not related to market efficiency.
CONCLUSION

In conclusion, for the first question, a low standard deviation investment will put a
company at less risk, while a high standard deviation investment will put it at more risk. With a
portfolio of securities or constructed portfolios, the overall risk is reduced, and a higher return is
achieved.
While for the second question, markets become efficient because of the immediate
reaction to the announcement. The market is efficient whether it is bad news or good news as
long as the reaction is instantaneous and the price changes rapidly to the knowable information.
Additionally, an efficient capital market is one in which stock prices fully reflect all available
information.
 DAY & TIME ACTIVITIES PLATFORM
DATE

Friday, 10:09 am Discussing the question, the Google Meet

10/12/2021 presentation tools should be used and
dividing the parts.

Wednesday, 9:46 am Checking together the answer and Google Meet

15/12/2021 brainstorming idea

Friday, 9:07 pm Final review of all of the answers Google Meet

17/12/2021

Saturday, 11.30 am Delegate the task of editing the video Whatsapp

18/12/2021 and compiling the report.

The tasks :
Nur Syuhada binti - Question no 1 (i), (ii) and b
Sulaiman - Compile and edit the video presentation

Nur Anis Nadhirah - Make introduction

binti Azis - Question no 2
- Make a report

Nurul Safia Safira - Question no 1 (c ) and (d)

binti Nurulzaman - Make a conclusion
- Make a report
APPENDICES