Security Valuation (Fin3Sev) – Semester 1, 2011

School of Economics and Finance La Trobe University SECURITY VALUATION (FIN3SEV) – SEMESTER 1, 2011

ASSIGNMENT 1 This assignment requires you to use the annual report of a company listed on the Australian Stock Exchange (ASX) as a means to gaining an understanding of the company’s ownership characteristics, risk and share price information. This may helps you understanding the forecast strategies. You are required to select one company for analysis from the ASX companies (do not choose the company from banking and insurance industry). The annual report can be found on university library website: http://www.lib.latrobe.edu.au/ (Under “database”, select click the icon “Annual reports online”). Also, you may find the company and market stock data on Yahoo Finance website http://au.finance.yahoo.com/. The bond yield can be found on Bloomberg http://www.bloomberg.com/index.html?Intro=intro3. You are required to answer the following questions: 1. Using the 2007-2009 annual reports, find out the composition of ownership structure for each year. Looking at the breakdown of shareholders in the firm, who is the marginal investor in this company for each year? Are there any significant changes within three years? 2. Calculate the default risk for year 2007 to 2009 by using following financial ratios :  EBITDA interest coverage  Operating income / sales  Long-term debt / capital  Total debt / capitalization . Are there any significant changes for default risk within three years? 3. Suppose you would like to use regression model to calculate the beta ratio of this company. A detailed CAPM regression model relating to input components including:  Risk-free rate  Market returns  Company returns Please answer the following questions? a. What benchmark that you would like to use as the risk-free rate? Justify your answer. b. What benchmark that you would like to use as the market return? Justify your answer. c. Find beta by using the regression method (use the historical...