TRIBHUVAN UNIVERSITY A PROJECT REPORT ON RISK AND RETURN ANALYSIS Of NABIL BANK AND STANDARD CHARTERED BANK Of NEPAL
With response to SHANKER DEV CAMPUS Putalisadak, Kathmandu (For the partial fulfillment of Bachelor of Business Administrative 7th semester on Investment Analysis)
Submitted To: Submitted By: Mr. Kiran Thapa Facilitator of Investment Analysis Shanker Dev Campus
Alina Shrestha Bipin Kafle Hemanta Adhikari Ranjit Lamichhane Umesh Lakhey (BBA 7 th Semester) Shanker Dev Campus
DECLARATION
We hereby declare that the work reported in this report entitled THE RISK AND RETURN ANALYSIS of NABIL BANK and STANDARD CHARTERED BANK of NEPAL has been prepared and submitted in the form of partial fulf fulfil illm lmen entt for for the the Bach achelo elor of Busin usines ess s Adm Adminis inisttrativ ative e unde underr the the supe superv rvis isio ion n of Mr Mr.. Kira Kiran n Thap Thapa, a, Asso Associ ciat ated ed Fa Faci cili lita tato torr of Inve Invest stme ment nt Analysis.
Submitted to: __________________ ______________ Mr. Kiran Thapa Facilitator of Investment Analysis Shanker Dev Campus
Submitted Alina Shrestha Bipin Kafle Hemanta Adhikari Ranjit Lamichhane Umesh Lakhey
By:
ACKNOWLEDGEMENT
This report has been prepared as the partial fulfillment of the requirement for the Bachelor in Business Administration. The proposal of the report is to be familiar with the various concepts of Investment mainly Risk and Return of a firm and their comparative analysis with their species. It has been pleasing and knowledgeable experience for us to prepare this report. We owe our enormous debt to Mr. Kiran Thapa for helping us creating this report. No word can suffice to express our thank fullness to Mr. Thapa for his unfailing help in procuring project relayed materials and information on them as well as expert guidance in the preparation of the report. We would like to express our gratitude to all those who have helped us in anyways while preparing this report and look forward to receiving suggestion for our improvement.
Group Members
ABBREVIATION
AM = Arithmetic Mean CV = Coefficient of Variation GM = Geometric Mean ROR = Rate Of Return ROI = Return On Investments SCB = Standard Chartered Bank SD = Standard Deviation
TABLE OF CONTENTS SECTION I INTRODUCTION 1. Introduction and background to topic 1.1 1.2 1.3 1.4 1.5
Return Forms of investment return Risk Sources of risk Risk and return analysis
2. Objectives and methodology 2.1 Objectives of the study 2.2 Methodology of the study 2.3 Significances of the study 2.4 Limitations of the study
SECTION II ANALYSIS OF THE STUDY 3. Risk and Return analysis 3.1 Holding Period Return 3.2Annualized Rate of Return - Arithmetic Mean - Geometric Mean 3.3 Standard deviation 3.4 Variance 3.5 Coefficient of Variance 3.6 Correlation 4. Comparative analysis
SECTION III SUMMARY AND CONCLSIONS 5. Summary, Conclusion and Recommendation 5.1 Summary 5.2 Conclusion
Bibliography
SECTION I INTRODUCTION
1. Introduction and background to topic 1.1 RETURN Return or rate of return (ROR), also known as return on investment (ROI) is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage. Return is the difference between ending wealth and beginning wealth. An investor is ready to sacrifice his present consumption for the future return or reward. Therefore, the motivation of investment is the return. The return is the difference between the terminal wealth (what an investor received) and initial wealth (what an investor invest). The invested wealth of investor may be increase or decrease or remains the same in future. If the terminal wealth is greater than the initial wealth there is positive return from the investment. If the terminal wealth is less than the initial wealth there is negative return from the investment. If the terminal wealth is equal with the initial wealth there is zero return. Investor always wants to higher return other things being the same. Investment return’ is the amount of money your investment earns. Return expresses the amount which an investor actually earned on an investment during a certain period. Return includes the interest, dividend and capital gains.
1.2
FORMS OF INVESTMENT RETURNS
There are three forms of investment returns 1. Interest 2. Dividends 3. Capital gains
Different investments produce different types of returns.
Interest
Dividend s
Capital Gains
bank savings account
Yes
-
-
bonds
Yes
-
-
dividends left on deposit (whole life)
Yes
-
-
GICs
Yes
-
-
mutual funds
Yes
Yes
Yes
-
-
Yes
Yes
Yes
Yes
stocks
-
Yes
Yes
T-bills
Yes
-
-
term deposits
Yes
-
-
Investment
real estate segregated funds
1.3
RISK
Investment risk’ is the variability of returns and the chance that your investment will return less than you expect, or your investment makes a loss leaving you with less capital than when you started, or your investment doesn’t even keep up with inflation meaning it is worth less over time. The "risk" of the investment, meanwhile, denotes the possibility or likelihood that the investor could lose money. Risk is defined as the possibility of the actual return being different from the expected return on an investment over the period of investment. Low risk leads to low returns. For instance, in case of government securities, while the rate of return is low, the risk of defaulting is also low. High risks lead to higher potential returns, but may also lead to higher losses. Longterm returns on stocks are much higher than the returns on Government securities, but the risk of losing money is also higher.
1.4 SOURCES OF INVESTMENT RISKS No investment is risk-free. Some investment risks may be particular to the investment itself or to the particular asset class. Others may be much broader, for example relating to the country of investment or the economy in general. The risk associated with a given investment alternative may result from a combination of a variety of possible sources. A prudent investor considers how the major sources of risk they affect the potential investment alternatives.
Economic risk (also known as systemic risk): Risk inherent in the economy as a whole. In the event of an economic recession, the stock market, the interest rate market and the exchange rate market may all be adversely affected. Economic risk can arise due to recession, failure in prudential regulation or faults in the financial system. Economic risk affects the entire market.
Market risk (also known as unsystematic risk): Risk of volatility in a market or market sector. The ‘tech boom’ and subsequent ‘tech wreck’ in the United States in the late 1990s was an example of the risk of a particular market sector. Market risk doesn’t affect the entire market.
Inflation risk: Risk that inflation will adversely affect the performance of your investment. Specially, this risk is the chance that generally rising prices will reduce purchasing power the amount of given commodity that can be purchased with a rupee
Management risk: Decisions made by the firm’s management and board of directors materially affect the risk faced by investors. Areas affected by these decisions range from the product innovation and production methods (business risk) and financing (financial risk) to acquisitions.
Interest rate risk: Risk that the value of an investment will change due to a change in interest rates. Changes in interest rates directly affect the value of interest rate securities, such as bonds. Interest rates also have an indirect effect on other investments, such as property and shares.
Exchange rate risk: Risk of fluctuations in exchange rates adversely affecting the value of an investment. A good way to diversify your investment portfolio is to invest overseas, but changes in the exchange rate of the Australian dollar against the currency of the country you invest in can affect the return of your investment.
Liquidity risk:
Risk that an investment can’t be easily and quickly converted into cash (bought or sold) at a fair price.
Credit risk (also known as counterparty risk): Risk that the counterparty to a contract will not live up to its contractual obligations.
Political risk (also known as geopolitical risk): Risk that a government will unexpectedly change its policies or implement new regulations, making an investment less attractive. Political risk can also refer to the uncertainty associated with investing in countries with a political climate less stable than our own.
Convertibility risk: Convertibility risk is that portion of the total variability of return from a convertible bond or a convertible preferred stock that reflects the possibility that the investment may be converted into the issuer’s common stock at a time or under terms harmful to the investor’s best interests.
Sovereign risk: Risk that a central bank will alter its foreign exchange regulations and reduce or null the value of foreign exchange contracts.
Country risk: Risk that a country won’t be able to meet its financial commitments.
Institutional risk (also known as operational risk): Risk of insufficient internal controls, failures in risk management systems, insufficient capital to absorb unanticipated losses, or inadequate governance structures. Institutional risk also refers to the financial standing of a financial institution or a company that invests money on your behalf. The level of institutional risk varies considerably depending on where you invest your money.
1.5
RISK AND RETURN ANALYSIS
The term "risk and return" refers to the potential financial loss or gain experienced through investments in securities. An investor who has registered a profit is said to have seen a "return" on his or her investment. The "risk" of the investment, meanwhile, denotes the possibility or likelihood that the investor could lose money. If an investor decides to invest in a security that has a relatively low risk, the potential return on that investment is typically fairly small. Conversely, an investment in a security that has a high risk factor also has the potential to garner higher returns. Return on investment can be measured by nominal rate or real rate (money earned after the impact of inflation has been figured into the value of the investment).
Different securities—including common stocks, corporate bonds, government bonds, and Treasury bills—offer varying rates of risk and return. "Treasury bills are about as safe an investment as we can get. There is no risk of default and their short maturity means that the prices of Treasury bills are relatively stable." Long-term government bonds, on the other hand, experience price fluctuations in accordance with changes in the nation's interest rates. Bond prices fall when interest rates rise, but they rise when interest rates drop. Government bonds typically offer a slightly higher rate of return than Treasury bills. Another type of security is corporate bonds. Those who invest in corporate bonds have the potential to enjoy a higher return on their investment than those who stay with government bonds. The greater potential benefits, however, are available because the risk is greater. Those corporations that have this default option, though, "sell at lower prices and therefore higher yields than government bonds." In the meantime, investors "still want to make sure that the company plays fair. They don't want it to gamble with their money or to take any other unreasonable risks. Therefore, the bond agreement includes a number of restrictive covenants to prevent the company from purposely increasing the value of its default option." Investors can also put their money into common stock. Common stockholders are the owners of a corporation in a sense, for they have ultimate control of the company. Their votes—either in person or by proxy —on appointments to the corporation's board of directors and other business matters often determine the company's direction. Common stock carries greater risks than other types of securities, but can also prove extremely profitable. Earnings or loss of money from common stock is determined by the rise or fall in the stock price of the company. There are other types of company stock offerings as well. Companies sometimes issue preferred stock to investors. While owners of preferred stock do not typically have full voting rights in the company, no dividends can be paid on the common stock until after the preferred dividends are paid.
Figure : Risk and Return Comparison
2 Objectives and methodology
2.1
OBJECTIVES OF THE STUDY
We have done this study to achieve some objectives. They are as follows: 1. To fulfill the partial requirement of BBA 7 th semester. 2. To know about the risk and return of an organization. i.e. Nabil bank 3. To find out the reliable and actual information of an organization. 4. To compare theoretical concept with its practical implication and trace out the difficulties in practical application of theory. 5. To find out the actual condition of the bank through risk and return analysis. 6. To make comparative study of two organization .i.e. Nabil bank and Standard chartered bank.
2.2METHODOLOGY OF THE STUDY
Methodology means the techniques or the methods used during the data collection for the study. For the collection of data different activities were performed like study of the related documents and published materials were analyzed.
Sources of data For the purpose of the study, data are collected mainly from the secondary sources.
Primary sources: Due to time constraints we were unable to collect the data from primary sources.
Secondary sources: We collected all the information mainly from the secondary sources. Under secondary sources, the data is collected by the help of books, library, thesis, articles, report, teachers, students.etc and also the data are included from the organization profiles, internet sources etc.
2.3 SIGNIFICANCES OF THE STUDY The importance and significance of the study are: This study is important to all the students to know about the risk and return analysis of the concerned organization. This study helps as reference to other students for preparing report. This study also helps to layman to understand about the organization. The study is fruitful to the various persons for investing in organization. This study is also helpful to the related organization. This study also helps for the comparative measurement between two organizations.
•
• • •
• •
2.4
LIMITATIONS OF THE STUDY
We are unable to prepare the report as per our expectation because of the following limitations: •
• • • •
•
Time constraint to prepare the report and its submission within the specified time. This study is based on secondary sources only. Unable to apply concrete methodology. This study is based on limited information only. This study is focused only on risk and return analysis of the organization. The study is based on two organizations only. i.e.Nabil bank and Standard chartered bank.
SECTION II ANALYSIS OF THE STUDY
INTRODUCTION OF THE ORGANISATION NABIL BANK LINITED Nabil Bank Limited, the first foreign joint venture bank of Nepal, started operations in July 1984. Nabil was incorporated with the objective of extending international standard modern banking services to various sectors of the society. Pursuing its objective, Nabil provides a full range of commercial banking services through its 40 points of representation across the kingdom and over 170 reputed correspondent banks across the globe.
Nabil, as a pioneer in introducing many innovative products and marketing concepts in the domestic banking sector, represents a milestone in the banking history of Nepal as it started an era of modern banking with customer satisfaction measured as a focal objective while doing business. Operations of the bank including day-to-day operations and risk management are managed by highly qualified and experienced management team. Bank is fully equipped with modern technology which includes ATMs, credit cards, state-of-art, world-renowned software from Infosys Technologies System, Bangalore, India, Internet banking system and Telebanking system. The closing stock prices of Nabil Bank in fiscal year 2066/2067 are as follows:
Table 1.1 Closing Price of NABIL Bank Period (Months)
Closing Price
2066 Ashadh 2066 Shrawn 2066 Bhadra 2066 Ashiwn 2066 Kartik 2066 Mangshir 2066 Poush 2066 Margh 2066 Falgun 2066 Chaitra 2067 Baishakh 2067 Jestha 2067 Ashadh
4899 4944 2820 2880 2700 2590 2600 2320 2261 2040 2200 2300 2384
3.1HOLDING PERIOD RETURN (HPR)
The period during which investor own an investment is called holding period and the return for that period is the holding period return. The HPR is the total return earned from the holding an investment an investment for specified period of time (the holding period). It represents the sum of current income and capital gains (or losses) achieved over the holding period, divided by the beginning investment value. The equation for HPR is:
HPR =
(P1 – P0) + D 1or I1 P0
Holding period return can be negative or positive. HPRs can be calculated with above equation using either historical data (ex-post data) or forecast data (ex-ante data).
Calculation of (Holding Period Return ) HPR for NABIL Bank HPR for 2066 Shrawn HPR for 2066 Bhadra HPR for 2066 Ashoj HPR for 2066 Kartik HPR for 2066 Mangshir HPR for 2066 Poush HPR for 2066 Magh HPR for 2066 Falgun HPR for 2066 Chaitra HPR for 2067 Baishakh HPR for 2067 Jestha HPR for 2067 Ashadh
3.2
HPR = 4944 – 4899 4899 HPR = 2820 – 4944 4944 HPR = 2880 – 2820 2820 HPR = 2700 – 2880 2880 HPR = 2590 – 2700 2700 HPR = 2600 – 2590 2590 HPR = 2320 – 2600 2600 HPR = 2261- 2320 2320 HPR = 2040 – 2261 2261 HPR = 2200 – 2040 2040 HPR = 2300 – 2200 2200 HPR = 2384 – 2300+30 2300
= 0.92 % = - 43.96% = 2.13% = - 6.25% = - 4.07% = 0.38% = -10.77% = - 2.54% = - 9.77% = 7.84% = 4.55% = 4.95%
Annualized rate of Return
An investor may hold his or her asset for a number of periods and may be interested to know the average realized rate of return from the investment. In such a case, the investor calculates the annualized rate of return or annualized holding period return. The annualized rate of return is calculated on two bases:
1. On Historical data: Arithmetic mean and Geometric mean 2. On Expected data: Expected rate of return
Arithmetic Mean The weighted average rate of return of each period rate of return is arithmetic mean, It can be calculated using the following equation:
Arithmetic mean ( r j )= ∑r jt ÷ n where, r j = Average return of asset j r jt = Holding period return of asset j over time t n= Number of periods
Geometric Mean The compounded per period average rate of return on financial asset during a specified time period is called geometric mean. The geometric mean can be calculated using following equation:
Geometric mean ( r G ) = [(1+r1)(1+r2) ... (1+rn)]1/n – 1 where, rG = Average geometric rate of return r1 = Rate of return for period 1 n = Total number of period
Geometric Mean(G.M.)= -5.7281%
Table1.2 Calculation of Arithmetic Mean and Geometric Mean of NABIL Bank Period (Months)
HPR ( rn %)
( r n - rn )
( rn - rn )2
2066 Shrawn 2066 Bhadra 2066 Ashiwn 2066 Kartik 2066 Mangshir 2066 Poush 2066 Margh
0.92 -42.96 2.13 -6.25 -4.07 0.38 -10.77
5.5525 -38.3275 6.7625 -1.6175 0.5625 5.0125 -6.1375
30.8303 1468.9973 45.7314 2.6163 0.3164 25.1252 37.6689
2066 Falgun 2066 Chaitra 2067 Baishakh 2067 Jestha 2067 Ashadh
-2.54 -9.77 7.84 4.55 4.95
Total Mean
-55.59
2.0925 -5.1375 12.4725 9.1825 9.5825
4.3786 26.3939 155.5633 84.3183 91.8243
1973.7640
-4.6325
Calculation of Arithmetic Mean A.M. ( rn )
= ∑ HPR N
-55.59 12
-4.6325%
Standard Deviation The standard deviation is defined as the square root of the variance. The standard deviation is statistical measure of the dispersion or deviation of possible outcomes around an expected or earning value; we use it to measure an asset’s or an investment’s total risk.
The standard deviation can be calculated using following equation:
σ j = √σ j2 =
Calculation of Standard Deviation (σn)
√
∑ (r j – r j)2
σ n
2
=
164 .4803 %%
= 12.83%
Coefficient of variation Coefficient of variance is the standardized measure of risk per unit of return. It provides a meaningful basis for a comparison when two or more than two investments of different expected return s and standard deviation are to be compared. It can be calculated by using the following equation:
CVA= (σA ÷ rA) where, CVA = Coefficient of Variation of asset A rA = Average return of A
σA = Standard Deviation of asset A Calculation of CVn= (σ n÷ rn) = 12.83%/-4.6325 =-2.7695
Variance The variance is defined as the weighted average of the square deviations of possible outcomes from the expected value or mean. The variance is a statistical measure of the dispersion or deviation of possible outcomes around an expected or mean value. It can be calculated using following equation:
Variance = σ j2 = ( r j – r j )2
2
Calculation of Variance (σ n)
= ∑( rn rn )2 N
1973.76 40 12
Calculation of Total Risk
Closing Price of NEPSE Period (Months) 2066 2066 2066 2066 2066 2066 2066 2066
Ashadh Shrawn Bhadra Ashiwn Kartik Mangshir Poush Margh
Closing Price 780.87 772.7 627.29 595.63 544.73 527.68 506.62 464.86
164.480 3
2066 2066 2067 2067 2067
Falgun Chaitra Baishakh Jestha Ashadh
461.76 418.56 427.43 455.03 456.96
Calculation of Arithmetic Mean of NEPSE
( rm rm )
( rm - rm )
Period (Months)
HPR ( r n %)
2066 Shrawn 2066 Bhadra 2066 Ashiwn 2066 Kartik 2066 Mangshir 2066 Poush 2066 Margh 2066 Falgun 2066 Chaitra 2067 Baishakh 2067 Jestha 2067 Ashadh
-1.0462 -18.8184 -5.0471 -8.5455 -3.123 -3.991 -8.2428 -0.6668 -9.3555 2.11 6.4571 0.4175
3.1081 -14.6641 -0.8928 -4.3912 1.0313 0.1633 -4.0885 3.4875 -5.2012 6.2643 10.6114 4.5718
9.6603 215.0356 0.7971 19.2826 1.0636 0.0267 16.7158 12.1627 27.0524 39.2416 112.6020 20.9014
Total
-49.8517
2
474.5417
-4.1543
Calculation of Arithmetic Mean A.M. ( rn )
2
Calculation of Variance (σ m)
∑ HPR N
49.8517 12
∑( rm - rm )2 N
474.541 7 12
Calculation of Standard Deviation (σm)
= σ n
2
39 .5451 %%
-4.154%
39.5451
6.2884%
CALCULATION OF TOTAL RISK OF NABIL BANK Calculation of Covariance and Correlation of Nabil Bank and NEPSE
Period (Months)
( rn rn )
(rm rm )
( rn - rn )(rm rm )
2066 Shrawn
3.1081 14.664 1 -0.8928 -4.3912 1.0313 0.1633 -4.0885 3.4875 -5.2012
17.2578
2067 Baishakh
5.5525 38.327 5 6.7625 -1.6175 0.5625 5.0125 -6.1375 2.0925 -5.1375 12.472 5
2067 Jestha 2067 Ashadh
9.1825 9.5825
2066 Bhadra 2066 Ashiwn 2066 Kartik 2066 Mangshir 2066 Poush 2066 Margh 2066 Falgun 2066 Chaitra
562.0380 -6.0375 7.1028 0.5801 0.8186 25.0931 7.2976 26.7211
6.2643 10.611 4 4.5718
78.1316 97.4393 43.8094
Total
Calculation of Covariance (COV n m) =
Calculation of Correlation =
860.2517
∑(rn - rn )(rm 860.25 rm ) = 17 N 12
(COV n m) σ
n×
σ2
m
= 71.69% 6.28 × 12.83
71.69%
0.889
Calculation of total risk = Systematic risk + Unsystematic risk 11.41% + 1.42% Total risk = 12.83%
Overview of Standard Chartered Bank Nepal Limited Standard Chartered Bank Nepal Limited has been in operation in Nepal since 1987 when it was initially registered as a joint-venture operation. Today the Bank is an integral part of Standard Chartered Group having an ownership of 75% in the company with 25% shares owned by the Nepalese
public. The Bank enjoys the status of the largest international bank currently operating in Nepal. With 18 points of representation, 23 ATMs across the country and with more than 350 local staff, Standard Chartered Bank Nepal Ltd. is in a position to serve its customers through an extensive domestic network. In addition, the global network of Standard Chartered Group gives the Bank a unique opportunity to provide truly international banking services in Nepal. Standard Chartered has a history of over 150 years in banking and operates in many of the world's fastest-growing markets with an extensive global network of over 1750 branches (including subsidiaries, associates and joint ventures) in over 70 countries in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom and the Americas. As one of the world's most international banks, Standard Chartered employs almost 75,000 people, representing over 115 nationalities, worldwide. This diversity lies at the heart of the Bank's values and supports the Bank's growth as the world increasingly becomes one market. Standard Chartered Bank Nepal Limited offers a full range of banking products and services in Consumer banking, Wholesale and SME Banking catering to a wide range of customers encompassing individuals, midmarket local corporates, multinationals, large public sector companies, government corporations, airlines, hotels as well as the DO segment comprising of embassies, aid agencies, NGOs and INGOs. The Bank has been the pioneer in introducing 'customer focused' products and services in the country and aspires to continue to be a leader in introducing new products in delivering superior services. It is the first Bank in Nepal that has implemented the Anti-Money Laundering policy and applied the 'Know Your Customer' procedure on all the customer accounts.
Corporate Social Responsibility is an integral part of Standard Chartered's ambition to become the world's best international bank and is the mainstay
of the Bank's values. The Bank believes in delivering shareholder value in a socially,
ethically
an environmentally
responsible
manner.
Standard
Chartered throughout its long history has played an active role in supporting those communities in which its customers and staff live. It concentrates on projects that assist children, particularly in the areas of health and education. Environmental projects are also occasionally considered.
It
supports
non-governmental
organisations
involving
charitable community activities The Group launched two major initiatives in 2003 under its 'Believing in Life' campaign- 'Living with HIV/AIDS' and 'Seeing is Believing'.
The closing stock price of Standard Chartered Bank in fiscal year 2066/2067 are as follows:
Table 1.3 Closing Price of Standard Chartered Bank
Period (Months) 2066 2066 2066 2066 2066 2066 2066 2066 2066 2066 2067 2067 2067
Ashadh Shrawn Bhadra Ashiwn Kartik Mangshir Poush Margh Falgun Chaitra Baishakh Jestha Ashadh
Closing Price 6010 6186 5235 3680 3568 3510 3305 3020 3126 2895 2920 3200 3279
Calculation of (Holding Period Return ) HPR for Standard Chartered Bank HPR for 2066 Shrawn HPR HPR HPR HPR HPR HPR HPR HPR HPR HPR HPR
HPR = 6186 – 6010 = 2.93 % 6010 for 2066 Bhadra HPR = 5235 – 6186 = - 15.37% 6186 for 2066 Ashoj HPR = 3680 – 5235 = - 29.70% 5235 for 2066 Kartik HPR = 3568 – 3680 = - 3.04% 3680 for 2066 Mangshir HPR = 3510 – 3568 = - 1.63% 3568 for 2066 Poush HPR = 3305 – 3510 = -5.84% 3510 for 2066 Magh HPR = 3020 – 3305 = - 8.62% 3305 for 2066 Falgun HPR = 3126 - 3020 = 3.51% 3020 for 2066 Chaitra HPR = 2895 – 3126 = - 7.39% 3126 for 2067 Baishakh HPR = 2920 – 2895 = 0.86% 2895 for 2067 Jestha HPR = 3200 – 2920 = 9.59% 2920 for 2067 Ashadh HPR = 3279 – 3200+60 = 4.34% 3200
Table 1.4 Calculation of Arithmetic Mean and Geometric Mean of Standard C Period HPR ( rs (Months) %) (rs - rs ) (rs - rs )2 2066 Shrawn 2066 Bhadra 2066 Ashiwn 2066 Kartik 2066 Mangshir 2066 Poush 2066 Margh 2066 Falgun 2066 Chaitra 2067 Baishakh 2067 Jestha 2067 Ashadh
2.93 -15.37 -29.7 -3.04 -1.63 -5.84 -8.62 3.51 -7.39 0.8 9.59 4.34
Total
-50.42
Mean
-4.2017
7.1317 -11.1683 -25.4983 1.1617 2.5717 -1.6383 -4.4183 7.7117 -3.1883 5.0017 13.7917 8.5417
50.8607 124.7317 650.1650 1.3495 6.6135 2.6841 19.5217 59.4698 10.1655 25.0167 190.2101 72.9601
1213.74 82
Calculation of Arithmetic Mean A.M. ( rs )
∑ HPR
= -50.42 12
N
4.2017%
Calculation of Geometric Mean(G.M.)= -4.7667% Calculation of Standard Deviation (σs) = σ s
= 10.06%
2
101 .1457 % %
Calculation of coefficient of variation(CVs) 4.2017 = -2.3942
2
Calculation of Variance (σ s) =
= (σs÷ rs)
∑(rs - rs )2 N
=
1213.74 82 12
=10.06%/-
= 101.1457
CALCULATION OF TOTAL RISK OF STANDARD CHARTERED BANK Calculation of Covariance and Correlation of Standard Chartered Bank and NEPSE
Period (Months)
( r s - rs )
(rm - rm )
( rs - rs )(rm - rm )
2066 Shrawn 2066 Bhadra 2066 Ashiwn 2066 Kartik 2066 Mangshir 2066 Poush 2066 Margh 2066 Falgun 2066 Chaitra 2067 Baishakh 2067 Jestha 2067 Ashadh
7.1317 -11.1683 -25.4983 1.1617 2.5717 -1.6383 -4.4183 7.7117 -3.1883 5.0017 13.7917 8.5417
3.1081 -14.6641 -0.8928 -4.3912 1.0313 0.1633 -4.0885 3.4875 -5.2012 6.2643 10.6114 4.5718
22.1660 163.7735 22.7647 -5.1011 2.6522 -0.2676 18.0643 26.8945 16.5831 31.3320 146.3490 39.0509
Total
484.2615
Calculation of Covariance (COV s m) =
Calculation of Correlation =
∑(rs - rs )(rm rm ) N
(COV n m) σ
ns×
σ2
m
484.26 = 15 12
= 40.35% 6.28 × 10.06
40.35%
0.6387
Calculation of total risk
= Systematic risk + Unsystematic risk 6.43% + 3.63% Total risk = 10.06%
Calculation of Covariance and Correlation of Nabil Bank and Standard Chartered Bank Covariance Covariance is the statistical measure of relationship between two random variables. Hence, covariance is a statistical measure of how he returns of two assets move together. It can be calculated using following equation:
CovAB = [ ∑ (rA – rA) (rB – rB) ] ÷ n where, CovAB = Covariance between A and B rA = Return of security A rB = Return of security B rA = Mean return of security A rB = Mean return of security B n = Number of observation
Coefficient of correlation Covariance is an absolute measure of interactive risk between two securities. To facilitate comparison, covariance can be standardized. Dividing the covariance between two securities by product of the standard deviation of each security give such a standardized measure. This measure
is called coefficient of correlation. It can be calculated using following equation:
ρAB = CovAB ÷ ( σA
X
σB )
where, ρAB = coefficient of correlation between A and B
Calculation of Covariance and Correlation of Nabil Bank and Standard Chartered Bank
Period (Months)
( ( rn r rn )(rs rs ) s
( rn - rn )
r s
) 2066 Shrawn 2066 Bhadra
5.5525 -38.3275
2066 Ashiwn
6.7625
2066 Kartik 2066 Mangshir 2066 Poush 2066 Margh 2066 Falgun 2066 Chaitra 2067 Baishakh 2067 Jestha
-1.6175 0.5625 5.0125 -6.1375 2.0925 -5.1375 12.4725 9.1825
2067 Ashadh
9.5825
7.1317 11.168 3 25.498 3 1.1617 2.5717 -1.6383 -4.4183 7.7117 -3.1883 5.0017 13.791 7 8.5417
Total
Calculation of Covariance (COV n s)
39.5986 428.0543
-172.4325
-1.8790 1.4466 -8.2121 27.1175 16.1367 16.3801 62.3833 126.6420 81.8505
617.0859
∑(rn - rn )(rs rs ) = N
Calculation of Correlation
SECTION III SUMMARY AND CONCLUSIONS 5.1
SUMMARY
The report starts with the introduction of risk and return then proceeds towards the introduction of Nabil Bank and Standard Chartered Bank and their risk and return of securities. In this report we have done all the calculations required for the risk and return analysis. We have calculated all the necessary calculations and we have also interpreted the results of securities return of both banks, Nabil Bank and Standard Chartered Bank.
5.2
CONCLUSION
From the whole study of the report of risk and return analysis of Nabil bank and Standard Chartered bank we have concluded that: By analyzing all the results we have concluded that the stock of the Nabil Bank limited is more risky than the stock of Standard Chartered bank. The returns of securities of Nabil bank and Standard Chartered bank are moving in same direction and they are perfectly correlated with each other. The return of securities of Nabil Bank is more closely correlated with the return of Market (NEPSE) than the Standard Chartered Bank.
BIBLOGRAPHY Books and Publications •
•
•
Thapa, Kiran. Fundamental of Investments. Asmita Books Publishers and Distributors Kathmandu, 4 th edition 2067. Bhattrai, Rabindra. Investments Theory and Practice. Buddha Academi Publishers and Distributors, Kathmandu,3 rd edition 2006 Thapa, Kiran. & Bharat Parajuli.Financial Institutions & Markets. Januka Publication, Kathmandu, 3 rd edition 2010.
Websites www.nepalstock.com www.nrb.org.np www.sharemarket.com www.nabilbank.com www.standardchartered.com
