Part B: Risk and return on equity of Asos Plc and BooHoo Plc Your CEO is also interested in the cost of equity capital of Asos and Boohoo. He asks you to provide a comparison of the two companies in terms of equity risk and return, based on monthly prices between February 2016 and March 2021. Required Write a separate report that summarizes the results of your calculations, describes what you did to obtain them and what your thoughts are on how to interpret them against the background of the risk-return trade-off in financial markets. Please use stock price data mentioned above and the FTSE AIM 100 index to answer the following questions: (a) What is each company’s return volatility over the sample period? What is each company’s compounded annual growth rate (of its stock price) over the sample period? How would you interpret that growth rate? (10 marks) (b) What is each company’s beta with respect to the FTSE AIM 100 Index? How would you interpret your estimated betas? (10 marks) (c) What is each company’s cost of equity capital? Please use the Capital Asset Pricing Model (CAPM). How would you explain any difference in the cost of equity capital to your CEO? (9 marks) (d) How would you identify the amount of systematic risk and the amount of unsystematic risk in each stock, using the CAPM? You do not have to perform that calculation, but your CEO is curious about how this identification works. (6 marks) (e) Are historical data suitable for judging the future development for these two stocks? (5 marks) Your report has to be clear and concise and should consider the overall assignment word limit. Notes on the data, your analysis and your submission. • Use adjusted monthly closing prices from Yahoo Finance or similar. The tickers are ASC.L for AsosPlc and BOO.L for BooHooPlc. Please do not forget to calculate returns before you proceed. • You can find the FTSE AIM 100 index data if you search on the London Stock Exchange’s website for ‘FTSE index values xlsx’. We will also have to filter for ‘Pages and documents’ Page 4 of 7 and then ‘Documents’. This should guide you to the right spreadsheet with daily data for all FTSE indices. • Together with your pdf document on Part B, you have to submit an Excel file. Your essay should briefly describe what calculations you perform in the spreadsheet, what inputs you use and why and justify any assumptions you have to make. You may add small amounts of text as comments in the spreadsheet, but any extensive explanation in the spreadsheet will neither be read nor marked.
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