# Essays on Corporate Finance - Webstar Limited Assignment

The paper "Corporate Finance - Webstar Limited " is a good example of a finance and accounting assignment.   The variance of the first stock is 0.007324409 while that of the second stock is 0.025657903 and that of ASX 200 is 0.014902836, the first stock represents that of WESTPAC BANKING CORPORATION while the second stock represents that of WEBSTAR LIMITED. The expected return is always the best estimation of the for the future returns. Managers and investors use the comparison of the market return to predict future returns. Variance and the standard deviation are used to estimate future stock returns. Compute the following for your portfolio Two-asset portfolio Relevant values from Part I Stock 1 Variance Portfolio Variance = w2A*σ 2(RA) + w2B*σ 2(RB) + 2*(wA)*(wB)*Cov(RA, RB) =(0.007324409*0.002979355)+ (0.025657903+0.007774545)+( 0.014902836*0.000697768) =2.1822014576195+1.99478521479135+ 1.0398722070048 =5.21685887941565 Vari10.007324409 Vari20.025657903 Varm0.014902836 Standard Deviation Standard deviation (σ ) is found by taking the square root of variance: =(5.21685887941565)^1/2 =2.284044412750253 SDi10.085582761 SDi20.160180845 SDm0.034644123 Q 5.2 The range between the values of the first stock and the second stock is high this is seen by the range of variance between the two company stocks the variance of the first stock is given as 0.007324409 while that of the second stock is 0.014902836 this shows a wide range of between the data.

This interpretation shows that the company with the first stock is highly performing as compared to the other since its sales prices are higher (Bacon, C. R. 2008). Q 5.3 After performing the two sets of the portfolio, diversification has been achieved. Investors are always trying to take smaller risks while doing their businesses, diversification is very imperative in reducing the risks that are posed and the general uncertainty of in the returns (Bacon, C. R. 2008). The standard deviation in the above portfolio gives a very good measure of riskiness to the users.

It tells the variability of the two stocks. Comparing the riskiness of conducting business with either of the two companies help us with achieving diversification. From the above data, it is clear that it is riskier to invest in the second stock company than the first stock (Saadi-Sedik, T., & Petri, M. 2006).

References

BACON, C. R. (2008). Practical portfolio performance measurement and attribution. Chichester, England, Wiley. http://site.ebrary.com/id/10257609.

ARAGON, G. O., & FERSON, W. E. (2008). Portfolio performance evaluation. Boston, Now. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=215728.

SAADI-SEDIK, T., & PETRI, M. (2006). The Jordanian stock market should you invest in it for risk diversification or performance? Washington, D.C., International Monetary Fund, Middle East and Central Asia Dept. http://www.imf.org/external/pubs/ft/wp/2006/wp06187.pdf.

MOERMAN, G. A. (2004). Diversification in Euro area stock markets: country versus industry. Frankfurt am Main, European Central Bank