...Executive Summary Our team concludes that risk and return are strongly correlated. A higher risk usually yields a higher return. Our team observed that within Alex Sharpe’s portfolio, the Reynolds’ fund holds the highest risk (highest standard deviation of 32.45%), as well as the highest return (16.27% in comparison to Hasbro’s return of 11.31%). Although a lower standard deviation (lower risk) is ideal for an investment portfolio, the Reynolds’ fund yields a higher return for the higher associated risk. Furthermore, our team’s data illustrated that the mix of S&P with Reynolds has a higher return and lower standard deviation than the S&P alone. In addition, if Sharpe invests in Reynolds and Hasbro equally, at for instance, one percent, the average return for Reynolds is significantly higher (at 7.08%) than the average return for Hasbro (at 6.97%). Computing the Sharpe ratio for each of the portfolios, the one with 1% Reynolds is the highest at. Given this analysis, our team feels that Alex Sharpe should consider investing more in the Reynolds fund than in Hasbro fund. Stock Analysis 1. Returns and Risk Estimate and compare the returns and variability (i.e., annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? | S&P500 | Reynolds | Hasbro | Arithmetic Return | 6.89% | 22.50% | 14.21% | Std Dev | 12.48% | 32.45% | 28.11% | Reynolds has the highest risk...
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...Context: Alex Sharpe currently invests her children’s educational savings in Vanguard 500 Index Fund, which tracks the performance of S&P 500 and is passively managed. However, she is now considering switching her investment strategy to a more active one to achieve better outcomes. Hasbro, a toy manufacturer, and Reynolds, a tobacco firm, have come into Sharpe’s sight and she wants to choose one of them and invest a small proportion of equity funds in it. In order to select a more appropriate investment target, the following issues should be taken into consideration by Sharpe: 1) What are the risk-return characteristics of each stock 2) What are the impacts of either stock to the overall risk-return profiles of the equity portfolio Analysis: 1. Suppose Sharpe's position had been 99 percent of equity funds invested in the S&P500 and either one percent in Reynolds or one percent in Hasbro. Estimate the resulting portfolio position. How does each stock affect the variability of the equity investment? Which stock appears to be the riskiest? Let A (and B) be the portfolio with 99% of S&P 500 and 1% of Reynolds (and 1% Hasbro). | S&P 500 | Reynolds | Hasbro | Portfolio A | Portfolio B | Mean Return | 0.5743% | 1.8748% | 1.1838% | 0.5873% | 0.5804% | Std Dev | 3.6017% | 9.3665% | 8.1158% | 3.5933% | 3.6174% | According to our calculation, Portfolio A is a better choice with higher expected return (0.5873%) and lower standard deviation (3.5933%)...
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...within Alex Sharpe’s portfolio, the Reynolds’ fund holds the highest risk (highest standard deviation of 32.45%), as well as the highest return (16.27% in comparison to Hasbro’s return of 11.31%). Although a lower standard deviation (lower risk) is ideal for an investment portfolio, the Reynolds’ fund yields a higher return for the higher associated risk. Furthermore, our team’s data illustrated that the mix of S&P with Reynolds has a higher return and lower standard deviation than the S&P alone. In addition, if Sharpe invests in Reynolds and Hasbro equally, at for instance, one percent, the average return for Reynolds is significantly higher (at 7.08%) than the average return for Hasbro (at 6.97%). Computing the Sharpe ratio for each of the portfolios, the one with 1% Reynolds is the highest at. Given this analysis, our team feels that Alex Sharpe should consider investing more in the Reynolds fund than in Hasbro fund. Stock Analysis 1. Returns and Risk Estimate and compare the returns and variability (i.e., annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? | S&P500 | Reynolds | Hasbro | Arithmetic Return | 6.89% | 22.50% | 14.21% | Std Dev | 12.48% | 32.45% | 28.11% | Reynolds has the highest risk (measured by Std Dev) and highest return. The standard deviation for Reynolds is 32.45% over 5 years. The arithmetic return is 22.5% over the same period. 2. Portfolio Risk ...
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...FINA 5210: Investment Analysis (Prof. Abhiroop Mukherjee) Alex Sharpe’s Portfolio Discussion Guidelines 1. Download the raw data file from the LMES website under folder Cases Alex Sharpe’s Portfolio. Estimate and compare the average returns and variability of Reynolds and Hasbro. Which stock appears to be the riskiest by itself? Computing the average returns and standard deviations of Reynolds and Hasbro gives us the results shown in the table below. If the stocks are judged just by themselves, Reynolds has a higher standard deviation than Hasbro (9.37>8.12), hence it is more risky. Question: Can we also consider the sharpe-ratio? This would show some kind of risk adjusted-return! | REYNOLDS | HASBRO | Mean | 1.87% | 1.18% | Stdev | 9.37% | 8.12% | 2. Suppose Sharpe’s position had been 99% of equity funds invested in the Vanguard 500 Index and either 1% in Reynolds or 1% in Hasbro. Estimate the average return and volatility of the resulting portfolio. How does each stock affect the variability of the equity investment? How does this compare to your answer in question 1? For both portfolio a and b, the average return increases compared to holding 100% of V500. The average return on portfolio a is higher than that of portfolio b (0.587>0.580). For portfolio a, the volatility of the portfolio decreases, whereas the volatility of Portfolio b increases. It is interesting to note that although Reynolds has a much higher standard deviation...
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...Alex Sharpe’s Portfolio 1. Returns and Risk Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? S&P 500 Annualized Expected Return: 6.8920% S&P 500 SD (Annualized): 12.477% Reynolds Annualized Expected Return: 22.4980% Reynolds SD (Annualized): 32.446% Hasbro Annualized Expected Return: 14.2060% Hasbro SD (Annualized): 28.114% Reynolds appears to be the riskiest stock since it has the highest standard deviation. The fact that Reynolds also has the highest annualized expected return supports this calculation since risk and return should be directly correlated. 2. Portfolio Risk Suppose Sharpe’s position had been 99 percent of equity funds invested in the S&P 500 and either one per cent in Reynolds over one percent in Hasbro. Estimate the resulting portfolio position. How does each stock affect the variability of the equity investment? How does this relate to your answer in question 1 above? Portfolio Return of S&P 500 and Reynolds (annualized): 7.0481% Portfolio Return of S&P 500 and Hasbro (annualized): 6.9651% Standard Deviation of S&P 500: 12.477% Standard Deviation of S&P 500 and Reynolds: 12.3638% Standard Deviation of S&P 500 and Hasbro: 12.3699% Although Reynolds was a riskier stock overall than Hasbro (as determined in question 1), due to the fact that Reynolds is less correlated to S&P...
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...w rP os t S 908N20 ALEX SHARPE'S PORTFOLIO op yo Professor Colette Southam wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright © 2008, Ivey Management Services Version: (A) 2008-07-11 On Friday, January 26, 2007, Alex Sharpe sat in her home office and pondered her investment strategy. During her MBA program, Sharpe had learned that in an efficient market, investors should buy and hold the ‘market portfolio’ because no other portfolio can offer the same expected return at a lower risk. Since the Standard & Poor’s (S&P) 500 was the most commonly used benchmark for the overall U.S. stock market, Sharpe had invested her children’s educational savings in the Vanguard 500 Index Fund, a no-load mutual fund constructed...
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...CONCORDIA UNIVERSITY John Molson School of Business - Department of Finance Portfolio Management - FINA 411/2/A, C Course Outline – Fall 2014 Instructor: Dr. Abraham I. Brodt Office: MB 12.215 Tel: 848-2424-2997 Fax: 848-4500 E-mail: ABrodt@jmsb.concordia.ca [SUBJECT: FINA 411 …….] Classes: FINA 411/2A Mondays 11:45 - 14:30 [MB1.437] FINA 411/2C Wednesdays 11:45 - 14:30 [MB5.255] Office Hours: Mondays and Wednesdays 15:30 -- 16:30 [Please e-mail me first to confirm] and by appointment COURSE DESCRIPTION: This course focuses on modern investment theory and its application to the management of entire portfolios. It will consist of lectures, discussions of cases and articles, and video presentations. Topics include: a) construction of optimal asset portfolios using techniques such as the single index model, b) extensions of the capital asset pricing model: theory and tests; example, the zero-beta model, c) criteria for evaluation of investment performance, d) active vs. passive portfolio management, e) investment strategies. The Formula Growth Investment Centre Lab will be used to demonstrate the use of specialized investment software. Computer exercises are assigned to illustrate the application of the theory. Prerequisites: FINA 380 or 385; FINA 390 or 395. LEARNING OBJECTIVES To understand the theory and practice of Portfolio Management for Individuals and Institutions, e.g. Endowments, Mutual Funds, Pension Plans, etc. ...
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...Alex Sharpe’s Portfolio 1. Returns and Risk Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? S&P: Monthly average return=0.57% Annual return= 6.89% Annual SD= 12.477% (monthly SD 3.60* 3.46 (square of 12)) Reynolds: Monthly average return= 1.87% Annual return= 1.87% * 12= 22.50% Annual SD: 32.446% (monthly SD 9.37* 3.46 (square of 12)) Hasbro: Monthly average return= 1.18% Annual return= 1.18% * 14.21% Annual SD= 28.114% (monthly SD 8.12* 3.46 (square of 12)) Conclusion: Correlation between high risk and high return. Reynolds is the riskier stock with an annual SD of 32.41% over 5 years, compared to Hasbro’s 28.08%. Reynolds annual return over the 5 year period of 22.50% is also higher than Hasbro’s return of 14.21%. 2. Portfolio Risk Suppose Sharpe’s position had been 99 percent of equity funds invested in the S&P 500 and either one percent in Reynolds over one percent in Hasbro. Estimate the resulting portfolio position. How does each stock affect the variability of the equity investment? How does this relate to your answer in question 1 above? ER of .99 S&P + .01 Reynolds Annual: 7.0481% SD of Reynolds in Portfolio Monthly: 3.5933% Annual: 12.4476% ER of .99 S&P + .01 Hasbro Annual: 6.9651% SD Hasbro in Portfolio Monthly: 3.6174% Annual: 12.5310% Results: Although Reynolds...
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...| Case 2: Alex Sharpe’s portfolio | 8.5.2014 | | Tools Tehtävä 1. CAPM kaava on: Osakkeen tuotto-odotus E(Ri) = 10,25 % Riskittömän sijoituskohteen tuotto Rf = 6 % Markkinaportfolion tuotto-odotus E(Rm) = 14,5 % (riskitön korko + riskipreemio) Sijoittamalla nämä yllä olevaan kaavaan saadaan: 10,25 % = 6 % + β(14,5 % - 6 %) josta saadan betan β arvoksi 0,5. Kun osakkeen tuottojen ja markkinaportfolion välinen kovarianssi kaksinkertaistuu, β-kerroin kaksinkertaistuu, kun markkinaportfolion varianssi ei muutu. Betan kaksinkertaistuessa osakkeen riskipreemio puolittuu. Kun β kerrotaan kahdella ja luvut sijoitetaan samaan kaavaan, saadaan osakkeen tuotto-odotukseksi E(ri) eli sijoittajien tuottovaatimukseksi 14,5 %. E(ri) = 6 % +2 *0,5 (14,5 % - 6 %) => E(ri)=14,5 %. Yrityksen maksaessa 50 € * 0,1025 = 5,125 € osinkoa, osakkeen arvoksi saadaan: CFvr= 5,1250,145= 35,34 € Tehtävä 2. a) Merkitään raaka-ainerahaston osuutta salkusta muuttujalla x. 12,5 % x + 9 % *(1-x) = 10 % josta saadaan x = 28,6 % b) Markkinaportfolion beta β on 1, joten salkun β on oltava 1. Merkitään raaka-ainerahaston osuutta salkusta muuttujalla x. 1,5x + 0,8*(1-x) = 1 josta saadaan x = 28,6 %, eli raaka-ainerahastoon tulee sijoittaa 28,6 %. c) Koska riskittömän sijoituksen volatiliteetti on 0, voidaan suoraan laskea salkun volatiliteetti painotetulla keskiarvolla. Merkitään nykyisen salkun osakkeita muuttujalla x. Seuraavien epäyhtälöiden täytyy olla voimassa: ...
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...E Summit Street Kent, Ohio 44240 February 1, 2007 Ms. Alex Sharpe Rhodes Rd Columbus, Ohio 43201 Dear Ms. Shape: I’m writing to give you some recommendations on your investment strategy on behalf of the College of Business Administration of Kent State University. From the information that you provided to us, I found that you want to pursue a more active investment strategy by adding stocks to your current equity portfolio in the Vanguard 500 Index Fund. And you are interested in the Hasbro and Reynolds. So I have done some analysis on the possible combination of these stocks. First, I did a summary statistics of the three assets base on the latest five years’ worth of monthly returns for Vanguard S&P 500 Index Fund, R.J. Reynolds and Hasbro. Among those return data, the Vanguard has a maximum return of 34.46% and a minimum return of -10.14. The Reynolds has a maximum return of 112.49 and a minimum return of -31.48. The Hasbro has a maximum return of 71.03 and a minimum return of -15.36. The result turns out that the Reynolds has the highest average return as 1.87% with a highest stand-alone risk measured by the standard deviation which is 8.116, while the Vanguard has the lowest average return as 0.57% with a lowest standard deviation 3.602 which means the lowest stand-alone risk. The sum of the five years’ returns for Vanguard is 34.46%, 112.49% for Reynolds, and 71.03% for Hasbro. So we can see that Reynolds has higher return together with a higher...
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...Curriculum Source References The following references were used in the CFA Institute-produced publications Quantitative Methods for Investment Analysis, Analysis of Equity Investments: Valuation, and Managing Investment Portfolios: A Dynamic Process. Ackerman, Carl, Richard McEnally, and David Ravenscraft. 1999. “The Performance of Hedge Funds: Risk, Return, and Incentives.” Journal of Finance. Vol. 54, No. 3: 833–874. ACLI Survey. 2003. The American Council of Life Insurers. Agarwal, Vikas and Narayan Naik. 2000. “Performance Evaluation of Hedge Funds with OptionBased and Buy-and-Hold Strategies.” Working Paper, London Business School. Ali, Paul Usman and Martin Gold. 2002. “An Appraisal of Socially Responsible Investments and Implications for Trustees and Other Investment Fiduciaries.” Working Paper, University of Melbourne. Almgren, Robert and Neil Chriss. 2000/2001. “Optimal Execution of Portfolio Transactions.” Journal of Risk. Vol. 3: 5–39. Altman, Edward I. 1968. “Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy.” Journal of Finance. Vol. 23: 589–699. Altman, Edward I. and Vellore M. Kishore. 1996. “Almost Everything You Wanted to Know about Recoveries on Defaulted Bonds.” Financial Analysts Journal. Vol. 52, No. 6: 57−63. Altman, Edward I., R. Haldeman, and P. Narayanan. 1977. “Zeta Analysis: A New Model to Identify Bankruptcy Risk of Corporations.” Journal of Banking and Finance. Vol. 1: 29−54. Ambachtsheer, Keith, Ronald Capelle, and...
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...edition • Required Course packet Purchase the course packet at: https://cb.hbsp.harvard.edu/cbmp/access/27906209 The course packet contains four cases. • Course Overview This course is an introductory course in investments. We cover the following topics (the chapters are from BKM): Note: The schedule given below is only tentative, and may be changed based on the progress of the class. It is a student’s responsibility to read the assigned chapters, as information in them may be part of a quiz or an exam. Week Week 1 Week 2 Week 3 BMGT343 Topic Introduction Debt securities – I Debt securities – II Reading Chapter 1, 2, and 3 Chapter 10 Chapter 11 Xiaohui Gao Bakshi Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 Portfolio theory I - Risk and return Portfolio theory II – Efficient diversification The capital asset pricing model (CAPM) Empirical tests of CAPM Market efficiency Midterm review Chapter 5 Chapter 6 Chapter 7.1 & 7.2 Chapter 7.3, 7.4, and 7.5 Chapter 8 Midterm Exam: October 30, Thursday (tentative schedule) Week 10 Week 11 Week 12 Week 13...
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...autocorrelation. Content: 1. Simple Regression Analysis 2. Multiple Regression Analysis 3. Dummy Variables 4. Heteroscedasticity 5. Autocorrelation Main Textbook: Dougherty, C. (2011). Introduction to Econometrics, 4th edition, Oxford. 2. Module Name: Computational Finance Code: P12614 Credits: 10 Semester: Spring 2011/12 Programme classes: 12 1-2 hour lectures/workshops Aims: The module aims to describe and analyse the general finance topics and introduces students to implement basic computational approaches to financial problems using Microsoft Excel. It stresses the fundamentals of finance; provides students with a knowledge and understanding on the key finance subjects such as money market, return metric, portfolio modelling, asset pricing, etc.; and equips students with the essential techniques applied in financial calculations. Contents: 1. Lecture Topic 1: Money Market Instrument : Introduction to the course; Interest rate types;...
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...relationship between beta and returns. The present paper is a similar attempt based on the work of Pettengill/Sundaram/Mathur (1995). The objective of this research initiative is threefold. First, we compute ‘beta’ (β) for each security with a view to examine the ‘systematic risk’ present in the market with the help of selected sample companies. Secondly, we classify the companies based on the beta coefficient as ‘high-risk’ and ‘low-risk’ based on both daily and monthly returns basis. Finally, we examine whether the risk category of companies undergoes significant changes between monthly and daily returns basis or not. Financial economists have applied innumerable tests to capture the ‘systematic risk’ present in a security or a portfolio in different markets in the world. Since 1970, there has been a large collection of research examining the systematic risk applying ‘beta coefficient’. Researchers have made attempts to examine the ‘beta-stability’ and time-varying characteristics of beta coefficient. However, all these research...
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...Family Dollar Stock Analysis and Recommendation Recommendation: HOLD Relevant Stock Information Ticker: FDO Company Beta: * 0.32 * (calculated from 3-year weekly historical stock prices) Closing Price as of April 12th 2012: $63.38 Dividend Yield: 1.30% P/E Ratio: $20.12 Current Market Capital: 7.52 Billion Summary of recommendation: Due to the current economic conditions and high possibility of economic change based on the current recession, Family Dollar’s public equity should mainly be considered from a short-term perspective. Applying this notion, we recommend that current FDO stockholders continue to hold their shares for the dividend yields and the potential increase in share value over the next few years. Investors seeking to purchase a dividend paying stock may also be interested in acquiring shares over the short-term horizon (1-2 years). However, those interested in safer longer-term investments may want to steer clear of FDO stock. The company’s capital expenditures and debt are increasing with the growth and development of new and current stores, and whether this expansion strategy will prove successful while the country’s economic conditions improve is highly dependent on the company’s ability to retain its customer base. In addition, while “quality” is subjective in nature, it is our opinion that consumers still attach a stigma to discount retailers and will likely choose to trade up to higher “quality” goods with improved economic conditions...
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