Assignment
Five years of return data are given for IBM and TEXACO:
|
Year
|
IBM
|
TEXACO
|
|
1
|
7.21%
|
9.83%
|
|
2
|
-10.97%
|
33.33%
|
|
3
|
13.07%
|
12.72%
|
|
4
|
32.17%
|
-2.75%
|
|
5
|
25.71%
|
37.43%
|
SDIBM = 16.85% SDTEXACO = 16.86%
COV(IBM,TEXACO) = - 0.01179
CORR(IBM,TEXACO) = - 0.4148
1- Calculate the actual mean return for each stock.
2- Suppose someone invests 20% in IBM and 80% in Texaco. Calculate the mean return for the portfolio.
3- Suppose someone invests 20% in IBM and 80% in Texaco. Calculate the standard deviation for the portfolio.
4- Determine the proportional investment in IBM and Texaco that provides the minimum variance portfolio?
5- What is the expected return of the minimum variance portfolio?
6- What is the standard deviation of the minimum variance portfolio?
7- Determine the proportional investment in IBM and Texaco that provides the CAPM portfolio?
8- What is the expected return of the CAPM portfolio?
9- What is the standard deviation of the CAPM portfolio?
10- The constant-growth dividend discount model can be used both for valuation of companies and for the estimation of the long-term total return of a stock.
Assume: $20 = Price of the Stock Today
8% = Expected Growth Rate of Dividends
$0.60 = Annual Dividend One Year Forward
Using only the preceding data, compute the expected long-term total return on the stock using the constant-growth dividend discount model.
11- Management has recently announced that expected dividends for the next three years will be as follow:
|
Year
|
Dividend
|
|
1
|
$2.50
|
|
2
|
$3.25
|
|
3
|
$4.0
|
For the subsequent years, management expects the dividend to grow at 5% annually. If the risk free rate of return is 4.3%, the return on the market is 10.3%, and the firm's beta is 1.4, what is the maximum price that you should pay for this stock?
12- You own 50 shares of stock A, which has a price of $12 per share, and 100 shares of stock B, which has a price of $3 per share. What is the portfolio weight for stock A in your portfolio?
13- What is the expected return for the following stock?
|
State
Average
Recession
Depression
|
Probability
.50
.35
.15
|
Return
.25
.05
-.35
|
14- What is the expected portfolio return given the following information?
|
Asset
A
B
C
D
|
Portfolio weight
.35
.15
.25
.25
|
Return
20%
35%
6%
12%
|
15- What is the expected market return if the expected return on asset A is 19% and the risk-free rate is 5%? Asset A has a beta of 1.4.
16- What is the portfolio beta if 60% of your money is invested in the market portfolio, and the remainder is invested in a risk-free asset?
17- What is the portfolio beta with 140% of your funds invested in the market portfolio via borrowing 40% of the funds at the risk-free interest rate?
18- What is the beta of a portfolio made up of two risky assets and a risk-free asset? You invest 35% in asset A with a beta of 1.2 and 35% in asset B with a beta of 1.1.
19- What is the expected return for the following portfolio?
Asset Investment Return
A $800 0.10
B $500 0.25
C $200 0.20
20- The riskless rate of interest is 0.06 per year, and the expected rate of return on the market portfolio is 0.15 per year.
According to the CAPM, what is the efficient way for an investor to achieve an expected rate of return of 0.10 per year?
Using monthly historical data for Caterpillar (CAT) and General Mills (GIS) over the last five years (2012-2016)
21- What's the average return for each stock?
22- What's the standard deviation of the returns for each stock?
23- What's the portfolio expected return from investing 50% in each stock?
24- What's the portfolio standard deviation from investing 50% in each stock?
25- Calculate Covariance and Correlation Coefficient
Using monthly historical data for Caterpillar (CAT), Wal-Mart (WMT), Apple (APPL), Amazon (AMZN), General Mills (GIS) and Home Depot (HDP) over the last five years (2012-2016)
Minimum Variance Portfolio
26- Calculate the weights in each stock in order to have the Minimum Variance Portfolio.
27- What's the expected return for the Minimum Variance Portfolio?
28- What's the standard deviation for the Minimum Variance Portfolio?
CAPM Portfolio
29- Calculate the weights in each stock in order to have the CAPM Portfolio.
30- What's the expected return for the CAPM Portfolio?
31- What's the standard deviation for the CAPM Portfolio?