Finance

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RSM330 Assignment 2 – Group Work Due: March 20, 2015 in class & online Question 1: Fundamental Analysis (Total 20 Marks) a) i. These two companies are both in the Auto Parts and Equipment industry. ii. The auto industry sells discretionary goods, which consumers can afford to purchase more of in a booming economy. Therefore these companies stocks are cyclical since their price can be affected by ups and downs in the economy. b) |Magma |2012 |2013 |2014 | |Net Profit Margin |4.6% |4.5% |5.1% |…show more content…
To obtain full marks you must answer correctly and keep your answers very brief, clear and to the point. (a) Fama and French argued that value stocks outperformed growth stocks because they were risker. The outperformance is explained by the excess risk that value stocks face as a result of their higher cost of capital and greater business risk. (b) In the early 1980’s and 1990’s, the performance of value and small cap stocks was very poor due to fact small companies were not as favored when compared to larger companies. Also the profitability of these small companies was much less in comparison to large stock companies. Although, value and small cap stocks were once again was making a comeback by the late 1990’s. Overall it is shown that value stocks consistently outperform growth, for example in 2000, when value stocks massively outperformed growth stocks. Where as, small cap stocks are not as consistent in outperforming large cap stocks. (c) DFA’s approach to trading small cap and micro cap stocks was taking on the selling demand of market participants. The reason they did this is because they faced liquidity problems. Therefore by buying large blocks of illiquid stocks they were able to remove the discount on the stock purchase and generate value for DFA and their clients. Question 3: Canadian Mutual Funds (Total of 40 Marks) a) | |RBC

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