Question

Calculate the return for investing for ZIP pay company both short term and long term and identify the main causes of its volatility in return over the corresponding holding period. The discussion of volatility should consider economic-wide and firm-specific factors.

Answer 1

Zip pay is an Australian company and it is also operating in New Zealand and it will be providing point of sale credit and digital payment service to the customers .

I will be trying to find the rate of return for investing into the share through Capital Asset pricing model in the short-term and in the long term also as I will be trying to ascertain the risk free rate of return as 2% in the current scenario and beta of this company is estimated to be 1.5 where is the market risk premium is around 3%.

Expected rate of return= Risk free rate +{beta X market premium}

Expected rate of return= 2+(1.5*3)= 6.50%

if I am looking for the expected rate of return for this company for the longer prospective then I would be trying to ascertain the recovery of the market and the risk free rate will be going up so the overall expected rate of return will be= 3+(1.5*4)= 9%

Main causes for the return in the corresponding holding period will be related to to the strengthening of the Australian dollars and changing Macro Economic situation in which there is credit will be going up and there will be a economic recovery after the coronavirus and it can also be assumed that the market will also be offering a higher rate of return and hence the economic stability will be leading to a better recovery and there will be a higher expected rate of return in the longer period of time whereas in the current period of time there is an expectation of impending recession and there is a weaker currency and there is not such great macroeconomic situations and hence it can be said that there cannot be a higher rate of return expected in the short period of time.