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Please adhere to following steps to develop the share valuation for the company assigned to the group.

Group-6

Hindalco

Step –1 : Take the cost of equity applying Beta. Beta to be arrived at on the basis of the weekly traded data of 2 years or take it from financial press. Please quote the name of the paper and date.

Step- 2: Assume Risk Free (Rf) Rate is 7.75 % and Market Return(Rm) is 17% .

Step -3: Cost of Debt and marginal tax rate to be arrived from latest years balance sheet and p/l account data.

Step-4: Fixed asset and Working Capital growth to be assumed on the basis of the past data.

Step-5: Assume first 10 years as assessable growth period and then perpetual growth rate.

HINDALCO Returns Nifty Returns
Date Adj Close Date Adj Close
02/05/2017 200.4 0.01 02/05/2017 9313.8 0
24/04/2017 199.35 0.06 24/04/2017 9304.05 0.02
17/04/2017 188.1 0.03 17/04/2017 9119.4 0
10/04/2017 183.25 -0.05 10/04/2017 9150.8 -0.01
03/04/2017 193.5 -0.01 03/04/2017 9198.3 0
27/03/2017 195.05 0 27/03/2017 9173.75 0.01
20/03/2017 194.9 -0.01 20/03/2017 9108 -0.01
13/03/2017 196.2 0.05 14/03/2017 9160.05 0.03
06/03/2017 187.6 -0.06 06/03/2017 8934.55 0
27/02/2017 198.55 0.09 27/02/2017 8897.55 0
20/02/2017 182.1 -0.01 20/02/2017 8939.5 0.01
13/02/2017 183.65 0.01 13/02/2017 8821.7 0
06/02/2017 182.05 -0.05 06/02/2017 8793.55 0.01
30/01/2017 191.75 0.01 30/01/2017 8740.95 0.01
23/01/2017 190.75 0.11 23/01/2017 8641.25 0.03
16/01/2017 171.65 0 16/01/2017 8349.35 -0.01
09/01/2017 172.25 0.07 09/01/2017 8400.35 0.02
02/01/2017 160.75 0.04 02/01/2017 8243.8 0.01
26/12/2016 155.05 -0.03 26/12/2016 8185.8 0.03
19/12/2016 159.3 -0.06 19/12/2016 7985.75 -0.02
12/12/2016 170.2 -0.07 12/12/2016 8139.45 -0.01
05/12/2016 182.1 0.08 05/12/2016 8261.75 0.02
28/11/2016 168.75 -0.07 28/11/2016 8086.8 0
21/11/2016 180.5 0.09 21/11/2016 8114.3 0
14/11/2016 165.35 -0.04 15/11/2016 8074.1 -0.03
07/11/2016 172.3 0.08 07/11/2016 8296.3 -0.02
31/10/2016 158.85 0.06 01/11/2016 8433.75 -0.02
24/10/2016 149.65 -0.01 24/10/2016 8638 -0.01
17/10/2016 151.85 -0.02 17/10/2016 8693.05 0.01
10/10/2016 154.6 -0.02 10/10/2016 8583.4 -0.01
03/10/2016 158 0.03 03/10/2016 8697.6 0.01
26/09/2016 152.7 -0.01 26/09/2016 8611.15 -0.02
19/09/2016 154.45 0.08 19/09/2016 8831.55 0.01
12/09/2016 142.65 -0.08 12/09/2016 8779.85 -0.01
05/09/2016 154.85 -0.01 06/09/2016 8866.7 0.01
29/08/2016 156.25 0.01 29/08/2016 8809.65 0.03
22/08/2016 154.5111 -0.02 22/08/2016 8572.55 -0.01
15/08/2016 157.9392 0.09 16/08/2016 8666.9 0.01
08/08/2016 145.4193 0.02 08/08/2016 8592.15 -0.01
01/08/2016 142.7862 0.08 01/08/2016 8683.15 0.01
25/07/2016 132.7007 -0.02 25/07/2016 8638.5 0.01
18/07/2016 135.1351 -0.01 18/07/2016 8541.2 0
11/07/2016 136.5262 0.08 11/07/2016 8541.4 0.03
04/07/2016 126.0433 0.02 04/07/2016 8323.2 0
27/06/2016 123.9567 0.06 27/06/2016 8328.35 0.03
20/06/2016 116.5541 -0.01 20/06/2016 8088.6 -0.01
13/06/2016 118.0445 0.03 13/06/2016 8170.2 0
06/06/2016 114.5668 0.09 06/06/2016 8170.05 -0.01
30/05/2016 104.8788 0.15 30/05/2016 8220.8 0.01
23/05/2016 91.3156 0.06 23/05/2016 8156.65 0.05
16/05/2016 86.3971 -0.03 16/05/2016 7749.7 -0.01
09/05/2016 88.7321 -0.03 09/05/2016 7814.9 0.01
02/05/2016 91.3156 -0.05 02/05/2016 7733.45 -0.01
25/04/2016 95.7373 -0.05 25/04/2016 7849.8 -0.01
18/04/2016 100.4571 0.05 18/04/2016 7899.3 0.01
11/04/2016 95.6876 0.1 11/04/2016 7850.45 0.04
04/04/2016 87.1423 0.01 04/04/2016 7555.2 -0.02
28/03/2016 86.099 -0.05 28/03/2016 7713.05 0
21/03/2016 90.7194 0.07 21/03/2016 7716.5 0.01
14/03/2016 84.6582 0.02 14/03/2016 7604.35 0.01
07/03/2016 82.969 0.05 08/03/2016 7510.2 0
29/02/2016 78.8951 0.14 29/02/2016 7485.35 0.06
22/02/2016 69.0083 0.01 22/02/2016 7029.75 -0.03
15/02/2016 68.6109 0.13 15/02/2016 7210.75 0.03
08/02/2016 60.5127 -0.15 08/02/2016 6980.95 -0.07
01/02/2016 70.7969 0.01 01/02/2016 7489.1 -0.01
25/01/2016 70.0517 -0.03 25/01/2016 7563.55 0.02
18/01/2016 71.8899 0.01 18/01/2016 7422.45 0
11/01/2016 71.3434 -0.07 11/01/2016 7437.8 -0.02
04/01/2016 76.411 -0.09 04/01/2016 7601.35 -0.04
28/12/2015 84.3601 0 28/12/2015 7946.35 0.01
21/12/2015 84.7079 0.07 21/12/2015 7861.05 0.01
14/12/2015 79.3919 0.05 14/12/2015 7761.95 0.02
07/12/2015 75.7651 -0.04 07/12/2015 7610.45 -0.02
30/11/2015 78.5473 0.02 30/11/2015 7781.9 -0.02
23/11/2015 77.1562 0.01 23/11/2015 7942.7 0.01
16/11/2015 76.7091 0 16/11/2015 7856.55 0.01
09/11/2015 76.9078 -0.04 09/11/2015 7762.25 -0.02
02/11/2015 80.3855 -0.04 02/11/2015 7954.3 -0.01
26/10/2015 83.5155 -0.01 26/10/2015 8065.8 -0.03
19/10/2015 84.5588 -0.03 19/10/2015 8295.45 0.01
12/10/2015 87.192 0.05 12/10/2015 8238.15 0.01
05/10/2015 83.4161 0.18 05/10/2015 8189.7 0.03
28/09/2015 70.4491 -0.01 28/09/2015 7950.9 0.01
21/09/2015 70.9459 -0.06 21/09/2015 7868.5 -0.01
14/09/2015 75.4173 0 14/09/2015 7981.9 0.02
07/09/2015 75.6161 0.04 07/09/2015 7789.3 0.02
31/08/2015 72.4364 -0.09 31/08/2015 7655.05 -0.04
24/08/2015 80.0329 -0.05 24/08/2015 8001.95 -0.04
17/08/2015 84.2968 -0.08 17/08/2015 8299.95 -0.03
10/08/2015 91.3052 -0.15 10/08/2015 8518.55 -0.01
03/08/2015 107.3804 0.04 03/08/2015 8564.6 0
27/07/2015 103.1165 -0.04 27/07/2015 8532.85 0
20/07/2015 107.1843 0.02 20/07/2015 8521.55 -0.01
13/07/2015 105.0769 0.02 13/07/2015 8609.85 0.03
06/07/2015 102.5284 -0.05 06/07/2015 8360.55 -0.01
29/06/2015 108.4096 -0.05 29/06/2015 8484.9 0.01
22/06/2015 114.6828 -0.03 22/06/2015 8381.1 0.02
15/06/2015 118.4075 0.03 15/06/2015 8224.95 0.03
08/06/2015 114.4378 -0.03 08/06/2015 7982.9 -0.02
01/06/2015 117.7704 -0.07 01/06/2015 8114.7 -0.04
25/05/2015 126.6902 -0.06 25/05/2015 8433.65 0
18/05/2015 134.1887 0 18/05/2015 8458.95 0.02
11/05/2015 134.2867 -0.01 11/05/2015 8262.35 0.01
04/05/2015 136.1981 04/05/2015 8191.5

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Irving Heathcote
Irving HeathcoteLv2
28 Sep 2019

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Question:

You are a manager of a superannuation fund which has $50M invested in Woodside (WPL) and $20M invested in Santos (STO). You have seen the roller-coaster ride in their prices in the past few years along with the oil price, and you have calculated the correlations between your portfolio value and the daily movements of oil prices and exchange rates. You are worried now that the oil price may drop again from its present levels, and you want to protect your portfolio’s value to some reasonable extent, while minimising the cost.

I got all the data, I calculated the correlations between the portfolio and the daily movements of oil prices and exchange rates. Can someone help me with some of the best hedging strategies for this situation while minimising the cost.

Frequency: Monthly
STO WPL PORFOLIO WTI EX. RATE AUD-US
Weight 0.285714 Weight 0.714286
Date Adj Close Date Adj Close observation_date Adj Close Adj Close x Ex. Rate (AUD) Date Last Price AUD_US US__AUD
31/05/2012 9.27512 31/05/2012 31.02 24.80717714 2012-06-01 82.30 84.55 31/05/2012 0.9734 1.0273269 correlation STO & WPL
30/06/2012 9.36221 30/06/2012 33.75 26.78206 2012-07-01 87.90 85.86 29/06/2012 1.0238 0.97675327 0.877567
31/07/2012 9.78024 31/07/2012 34.3 27.29435357 2012-08-01 94.13 89.62 31/07/2012 1.0503 0.95210892
31/08/2012 9.89346 31/08/2012 33.14 26.49813071 2012-09-01 94.51 91.56 31/08/2012 1.0322 0.9688045 correlation WPL & WTI (w. ex. Rate added)
30/09/2012 10.0241 30/09/2012 34.4 27.43545857 2012-10-01 89.49 86.23 28/09/2012 1.0378 0.9635768 0.843472
31/10/2012 9.70186 31/10/2012 33.8 26.91481643 2012-11-01 86.53 83.39 31/10/2012 1.0376 0.96376253
30/11/2012 9.66703 30/11/2012 33.88 26.96200929 2012-12-01 87.86 84.25 30/11/2012 1.0428 0.95895666 Correlation STO & WTI (w. ex. Rate added)
31/12/2012 10.416 31/12/2012 35.47 28.311715 2013-01-01 94.76 91.17 31/12/2012 1.0394 0.96209352 0.938628
31/01/2013 11.6788 31/01/2013 37.5 30.12251429 2013-02-01 95.31 91.42 31/01/2013 1.0425 0.95923261
28/02/2013 10.8253 28/02/2013 35.82 28.67865714 2013-03-01 92.94 90.98 28/02/2013 1.0215 0.97895252 Correlation Portfolio & WTI
31/03/2013 10.7557 31/03/2013 37.56 29.90162929 2013-04-01 92.02 88.32 29/03/2013 1.0419 0.95978501 0.873927
30/04/2013 11.3914 30/04/2013 35.99 28.96183 2013-05-01 94.51 91.13 30/04/2013 1.0371 0.96422717
31/05/2013 10.9124 31/05/2013 35.01 28.12497 2013-06-01 95.77 100.06 31/05/2013 0.9571 1.0448229 Correlation Portfolio & WTI (w. ex. Rate added)
30/06/2013 11.9052 30/06/2013 37.59 30.25148571 2013-07-01 104.67 114.54 28/06/2013 0.9138 1.09433136 0.886146
31/07/2013 12.9939 31/07/2013 38.18 30.98397143 2013-08-01 106.57 118.65 31/07/2013 0.8982 1.11333779
31/08/2013 13.1332 31/08/2013 38.31 31.11662929 2013-09-01 106.29 119.41 30/08/2013 0.8901 1.12346927 Portfolio with FX US_AUD
30/09/2013 13.2116 30/09/2013 38.82 31.50331429 2013-10-01 100.54 107.91 30/09/2013 0.9317 1.07330686 -0.7285
31/10/2013 12.1926 31/10/2013 37.4 30.19788714 2013-11-01 93.86 99.26 31/10/2013 0.9456 1.05752961
30/11/2013 12.7413 30/11/2013 38.9 31.42608714 2013-12-01 97.63 107.19 29/11/2013 0.9108 1.09793588 Correlation Portfolio & FX AUD_US
31/12/2013 11.6179 31/12/2013 37.38 30.01940071 2014-01-01 94.62 106.11 31/12/2013 0.8917 1.1214534 0.672549
31/01/2014 11.8791 31/01/2014 37.95 30.50117214 2014-02-01 100.82 115.14 31/01/2014 0.8756 1.14207401
28/02/2014 11.7572 28/02/2014 39.02 31.23062857 2014-03-01 100.80 112.95 28/02/2014 0.8924 1.12057373
31/03/2014 11.9749 31/03/2014 40.8 32.56425643 2014-04-01 102.07 110.18 31/03/2014 0.9264 1.07944732
30/04/2014 12.6455 30/04/2014 42.17 33.73442714 2014-05-01 102.18 110.02 30/04/2014 0.9287 1.07677399
31/05/2014 12.4191 31/05/2014 41.07 32.88402857 2014-06-01 105.79 113.63 30/05/2014 0.931 1.07411386
30/06/2014 12.6804 30/06/2014 42.52 33.9944 2014-07-01 103.59 109.82 30/06/2014 0.9433 1.06010813
31/07/2014 12.9155 31/07/2014 42.7 34.19014357 2014-08-01 96.54 103.86 31/07/2014 0.9295 1.07584723
31/08/2014 11.9052 31/08/2014 40.6 32.40148429 2014-09-01 93.21 99.81 29/08/2014 0.9339 1.07077846
30/09/2014 11.2346 30/09/2014 40.13 31.87417214 2014-10-01 84.40 96.49 30/09/2014 0.8747 1.14324911
31/10/2014 8.79612 31/10/2014 35.75 28.04889143 2014-11-01 75.79 86.14 31/10/2014 0.8798 1.13662196
30/11/2014 7.18495 30/11/2014 38.01 29.20284143 2014-12-01 59.29 69.70 28/11/2014 0.8506 1.17564072
31/12/2014 6.86272 31/12/2014 34.28 26.44649071 2015-01-01 47.22 57.76 31/12/2014 0.8175 1.22324159
31/01/2015 6.91497 31/01/2015 35.18 27.10427714 2015-02-01 50.58 65.16 30/01/2015 0.7762 1.28832775
28/02/2015 6.21825 28/02/2015 34.52 26.43378571 2015-03-01 47.82 61.24 27/02/2015 0.7808 1.2807377
31/03/2015 7.2285 31/03/2015 35.05 27.10099929 2015-04-01 54.45 71.58 31/03/2015 0.7607 1.31457868
30/04/2015 7.18495 30/04/2015 36.63 28.21712929 2015-05-01 59.27 74.98 30/04/2015 0.7905 1.26502214
31/05/2015 6.81917 31/05/2015 34.23 26.39833429 2015-06-01 59.82 78.25 29/05/2015 0.7645 1.30804447
30/06/2015 6.44469 30/06/2015 35.65 27.30562714 2015-07-01 50.90 66.04 30/06/2015 0.7707 1.29752173
31/07/2015 4.46773 31/07/2015 30.97 23.39792214 2015-08-01 42.87 58.66 31/07/2015 0.7308 1.36836344
31/08/2015 3.98 31/08/2015 28.93 21.80142857 2015-09-01 45.48 63.94 31/08/2015 0.7113 1.40587656
30/09/2015 5.08608 30/09/2015 29.61 22.60316643 2015-10-01 46.22 65.86 30/09/2015 0.7018 1.42490738
31/10/2015 4.01 31/10/2015 30.11 22.65285786 2015-11-01 42.44 59.46 30/10/2015 0.7138 1.40095265
30/11/2015 3.68 30/11/2015 28.72 21.56571357 2015-12-01 37.19 51.46 30/11/2015 0.7227 1.38370001
31/12/2015 3.16 31/12/2015 27.95 20.86714357 2016-01-01 31.68 43.48 31/12/2015 0.7286 1.3724952
31/01/2016 3.31 31/01/2016 28.1 21.01714286 2016-02-01 30.32 42.80 29/01/2016 0.7084 1.41163185
29/02/2016 4.03 29/02/2016 25.96 19.694285 2016-03-01 37.55 52.58 29/02/2016 0.7141 1.40036409
31/03/2016 4.8 31/03/2016 28.34 21.61428571 2016-04-01 40.76 53.23 31/03/2016 0.7657 1.30599451
30/04/2016 4.53 30/04/2016 27.4 20.86571429 2016-05-01 46.71 61.44 29/04/2016 0.7603 1.31527029
31/05/2016 4.64 31/05/2016 26.84 20.49714286 2016-06-01 48.76 67.40 31/05/2016 0.7234 1.38236107
30/06/2016 4.39 30/06/2016 26.53 20.20428643 2016-07-01 44.65 59.92 30/06/2016 0.7451 1.34210173
31/07/2016 4.44 31/07/2016 28.63 21.71857071 2016-08-01 44.72 58.87 29/07/2016 0.7596 1.31648236
31/08/2016 3.61 31/08/2016 28.62 21.47428643 2016-09-01 45.18 60.10 31/08/2016 0.7517 1.33031795
30/09/2016 3.57 30/09/2016 28.37 21.28428643 2016-10-01 49.78 64.95 30/09/2016 0.7664 1.30480167
31/10/2016 3.93 31/10/2016 29.62 22.28000071 2016-11-01 45.66 60.01 31/10/2016 0.7609 1.31423314
30/11/2016 4.02 30/11/2016 31.16 23.40571429 2016-12-01 51.97 70.37 30/11/2016 0.7385 1.35409614
31/12/2016 4 31/12/2016 31.56 23.68571357 2017-01-01 52.50 72.84 30/12/2016 0.7208 1.38734739
31/01/2017 3.8 31/01/2017 31.34 23.47142857 2017-02-01 53.47 70.49 31/01/2017 0.7585 1.31839156
28/02/2017 3.8 28/02/2017 32.08 24.00000143 2017-03-01 49.33 64.42 28/02/2017 0.7657 1.30599451
31/03/2017 3.48 31/03/2017 32.18 23.98 2017-04-01 51.06 66.93 31/03/2017 0.7629 1.31078778

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