♣ This take home is due on May 9th (day of the final) at the beginning of the final exam .
♣ There will be a 10% penalty per day for late assignments. .
♣ Answer each question in a chronological order.
♣ I will not accept any projects via e-mail.
♣ I will not accept any hand written projects.
Pick Two stocks ( from Dow or S&P500 ) from yahoo finance and answer the following questions :
use a 5 year holding period (example 2010-2016).
a. Give business summary and key statistics for each.
b. Calculate the average annual return for each stock.
Hint: Use the formula whereis the return on the security, is the price of the security a time period t and is the price of the security at time
c. Which is the riskiest security and which is the least riskiest based on the SD?
(remember higher the standard deviation the riskier the stock will be).
d. Please comment on the best performing stock and the worst performing stock and provide some justification.
e. Calculate all possible cross-correlations. Briefly discuss the results.
f. Build a portfolio and allocate weights as you wish. Calculate portfolio return (based on average annual return that you calculated in question b)
using the formula:
Where are the weights to you allocate to each security and are the average rate of return from each security.
Where W’s are the weights and R’s are the returns.
g. How does your answer in f. compare to the answer that you found in b.? Please comment.
h. Calculate the beta of each individual security.
i. How does your results compare with the one found in c?
j. Calculate the portfolio beta using the formula:
Where are the weights to you allocate to each security and are betas of each security.
k. Calculate the expected rate of return of your portfolio using the CAPM:
where is the risk free rate (assume 2.9%) and is the rate of return of the market.
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