...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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...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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...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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...SOLUTIONS TO EXERCISES AND CASES For FINANCIAL STATEMENT ANALYSIS AND SECURITY VALUATION Stephen H. Penman Fifth Edition CHAPTER ONE Introduction to Investing and Valuation Exercises Drill Exercises E1.1. Calculating Enterprise Value This exercise tests the understanding of the basic value relation: Enterprise Value = Value of Debt + Value of Equity Enterprise Value = $600 + $1,200 million = $1,800 million (Enterprise value is also referred to as the value of the firm, and sometimes as the value of the operations.) E1.2. Calculating Value Per Share Rearranging the value relations, Equity Value = Enterprise Value – Value of Debt Equity Value = $2,700 - $900 million = $1,800 Value per share on 900 million shares = $1,800/900 = $2.00 E1.3 Buy or Sell? Value = $850 + $675 = $1,525 million Value per share = $1,525/25 = $61 Market price = $45 Therefore, BUY! Applications E1.4. Finding Information on the Internet: Dell Inc., General Motors, and Ford This is an exercise in discovery. The links on the book’s web site will help with the search. E1.5. Enterprise Market Value: General Mills and Hewlett-Packard a) General Mills | | | |Market value of the equity = $36.50 ( 644.8 million shares = ...
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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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...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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...| 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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...Case Study Assignment: Alex Sharpe's Portfolio 1. 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 | REYNOLDS | HASBRO | Annualized Expected Return | 6.892% | 22.498% | 14.206% | Annualized Standard Deviation | 12.477% | 32.446% | 28.114% | Reynolds seems riskier than Hasbro due to its higher percentage of standard deviation. 2. Suppose Sharpe’s position had been 99% of equity funds invested in the S&P 500 and either 1% in Reynolds or one per cent 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? * - Scenario 1: = SP500 (99%) * Reynolds (1%) * = (.99) x (.689) + (.01) x (.2249) * = 0.06823 + 0.00224 = 0.07047 * = 7.05% * Standard Deviation = 12.3638% * * * - Scenario 2: = HASBRO (1%) SP500 (99%) = (.01) x (.1421) + (.99) (.689) ...
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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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...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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...RULES AND REGULATIONS OF M.B.A. PROGRAMME – 2010 The Master of Business Administration (M.B.A.) is a Post-Graduate course offered as: I. II. Two-year i.e., four semester Full time Day programme Three year, i.e., six semester Part-time programme offered to Working Executives and employees. 1. ELIGIBILITY CONDITIONS 1.1 M.B.A. (Day) Candidate seeking admission into Full Time M.B.A. (Day) programme must be: 1. Bachelor degree holder of Osmania University or a degree recognized by the university as equivalent thereto and /(or) as per the rules laid down by the University; 2. The candidate seeking admission must qualify in the Entrance Examination, conducted by the appropriate authority in the year of admission as per the norms prescribed by the University. 3. The admission of Non-resident Indians and candidates admitted in lieu of them will be as per the University Rules in force on the date of the admission. 4. Foreign candidates’ admission is based on the Screening Process of the University currently in vogue. 1.2 M.B.A. (Evening) Candidate seeking admission into Part-Time M.B.A. (Evening) Programme has to satisfy the following Conditions: 1. Must be a Bachelor Degree holder of Osmania University or a Degree recognized by the university as equivalent thereto and/ (or) as per the Rules laid down by the University. 2. The candidate seeking admission must qualify in the entrance examination conducted by the appropriate authority in the year of admission as per the norms prescribed...
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...UNIVERSITY INSTITUTE OF APPLIED MANAGEMENT SCIENCES Aruna Chandra Hall (Near Post Office), Panjab University, Sector 14, Chandigarh-160 014 (India) Telefax: 0172-2701403 Phone: 0172-2534889 Email: uiams@pu.ac.in Website: uiams.puchd.ac.in SYLLABUS OF THE 1ST YEAR TRIMESTER – I CODE MBA-011 MBA-021 MBA-031 MBA-041 MBA-051 MBA-061a MBA-061b PAPER Principles and Practices of Management Quantitative Techniques for Managerial Decision Making. Managerial Economics Human Resource Management Accounting for Management Seminar on Executive Communication Workshop on Information Technology for Management CREDITS 4 4 4 4 4 2 2 MARKS 100 100 100 100 100 50 50 TRIMESTER – II CODE MBA-072 MBA-082 MBA-092 MBA-102 MBA-112a MBA-112b PAPER CREDITS Quantitative Methods and Operations Research 4 Economic Environment for Business 4 Production and Operations Management 4 Financial Management 4 Seminar on Negotiation Skills 2 Workshop on Management Information Systems 2 o Introduction to Retail Management (R. Mgt.)* 4 SECTORAL SUBJECT – 1 MARKS 100 100 100 100 50 50 100 o Principles of Banking and Insurance (B & I)* o Introduction to IT and Telecommunications (IT & Tel)* o Introduction to Infrastructure (Infra. Mgt.)* o Industrial Pharmacy and Pharmaceutical Technology (Pharma. Mgt.)* o Hospital Planning and Organization (Hosp. Mgt.)* MBA-122 *R. Mgt= Retail Management; B&I= Banking & Insurance; IT & Tel.= IT & Telecommunication; Infra. Mgt.=Infrastructural Management; Pharma. Mgt...
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...More Than a Numbers Game A Brief Histor y of Accounting Thomas A. King John Wiley & Sons, Inc. More Than a Numbers Game More Than a Numbers Game A Brief Histor y of Accounting Thomas A. King John Wiley & Sons, Inc. Copyright © 2006 by Thomas A. King. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability...
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