Group Project (weight 15%)

BBA (Spring 2023): Business Finance

Choose two companies from the Pakistan Stock Exchange (PSX), and download the daily closing stock
prices for any one complete month of 2022/2023 (such as data either for the whole month of February
or March, May etc., for2022 or 2023).

a. Use the data to calculate annual rates of return for Company A & B and the KSE 100 Index. Then
calculate each entity’s average return over the one-month period. Remember, returns are
calculated as follows:
Return = [(Price t + 1) / (Price at t)] – 1

b. Calculate the standard deviations of the returns for Company A, Company B, and the
KSE-100. (Hint: Use the sample standard deviation formula, Equation 8-2a in this Chapter, which
corresponds to the STDEV function in Excel.)
c. Calculate the coefficients of variation for Company A, Company B, and the KSE-100. Construct a
scatter diagram that shows Company A, and Company B, returns on the vertical axis and the
KSE-100 Index’s returns on the horizontal axis.
d. Estimate Company A and Company B betas by running regressions of their returns against the
index’s returns. (Hint: Refer to Web Appendix 8A.) Are these betas consistent with your graph?
e. Assume that the risk-free rate on long-term Pakistan Invest Bonds (PIBs) is 6.04%. Assume also
that the average annual return on the KSE-100 is not a good estimate of the market’s required
return. So use 11% as the expected return on the market. Use the SML equation to calculate the
two companies’ required returns.
f. If you formed a portfolio that consisted of 50% Company A and 50% Company B, what would the
portfolio’s beta and required return be?
g. Suppose an investor wants to include Company A stock in his portfolio. Stocks C, D, and E are
currently in the portfolio; and their betas are 0.769, 0.985, and 1.423, respectively. Calculate the
new portfolio’s required return if it consists of 25% of Company A, 15% of Stock C, 40% of Stock
D, and 20% of Stock E.

Additional instructions for students:

1) No groups will have the same companies. Each group must select a different pair of
companies. There are over 500 companies listed on the Pakistan Stock Exchange (PSX).
2) Select those companies that are actively traded on the stock exchange, not those whose
shares are inactive.
3) Each group will prepare a project report giving solutions to the above questions along with
the necessary Excel sheets.
4) Every student must upload their group project on Moellim in Excel file by 23-6-23 (Friday)
the latest.
5) Failure to do so would result in zero marks for the student.