PART I – Company Profile (150 words)
1. Prepare a brief description of Apple Inc and The Coca-Cola Company using the latest Annual Reports. The description should include: main areas of business activities, main products/services, and principal geographies.
PART II – Financial Performance (400 words)
2. Using the companies’ financial statements, carry out a full financial statement analysis using a variety of financial ratios, including liquidity measures (acid test ratio; cash ratio), long-term solvency measures (total debt ratio; interest coverage ratio), turnover measures (inventory turnover; asset turnover), and profitability measures (net profit margin; return on equity) in the analysis. Present the ratios in bar-charts depicting the change of the ratios over the past five years.
3. Comment on the performance of both companies over the past five years using your findings, outlining changes in the companies’ fortunes and change drivers.
PART III – Market Performance (450 words)
1. Using relevant literature, explain the importance of financial markets and the driving forces of share prices in the stock market.
2. Download the daily historical price data for Apple Inc., The Coca-Cola Company and the S&P500. The data should include 5 years of daily stock prices from 14th October 2015 until 13th October 2020.
3. Compute the average daily return, standard deviation, skewness and kurtosis for each share and the market.
4. Create a density plot of the daily returns. The returns distribution should range between -3.50% and +3.50%, and the bin width should be 0.5%.
5. Plot the average annual returns and standard deviations in the return-volatility space.
6. Using the plots and summary statistics, write a full comment on the risk-return profiles of Apple Inc, The Coca-Cola Company, and the market index.
Note: Format your answers to keep three digits after the decimal point.
PART IV – Portfolio of Shares (500 words)
Consider the following portfolio: Apple Inc; The Coca-Cola Company.
1. Compute the correlation matrix for Apple Inc, The Coca-Cola Company and the S&P500. Explain the importance of the correlation information.
2. Compute the portfolio return and variance with weights combinations varrying from 0% in Apple Inc – 100% in The Coca-Cola Company to 100% in Apple Inc – 0% in The Coca-Cola, increasing Apple Inc.’s weight by 10% each time.
3. Plot the returns and variances of the portfolio combinations.
4. Explain the efficient frontier and highlight it on the return-variance plot.
5. Using the Excel Solver, find the weights of the two assets for the minimum variance portfolio (MVP) and report the return and variance of the MVP. Add the MVP to the plot.
6. Explain the limits of diversification, referring to the types of risks and their sources, with examples. Support your argument with references to relevance literature.