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Appendix 1.1: Table 1.1 - Weekly discrete rate of returns Week Date Apple Inc. (AAPL) McDonald's...
| Appendix 1.1: Table 1.1 - Weekly discrete rate of returns | |||||
| Week | Date | Apple Inc. (AAPL) | McDonald's Corporation (MCD) | Southwest Airlines Co. (LUV) | S&P 500 Index (GSPC) |
| 1 | 30-Oct-17 | ||||
| 2 | 6-Nov-17 | 1.2549% | -1.8187% | -1.1872% | -0.2141% |
| 3 | 13-Nov-17 | -2.2355% | 0.6847% | 2.2714% | -0.1336% |
| 4 | 20-Nov-17 | 2.8316% | 1.4330% | 0.7893% | 0.9140% |
| 5 | 27-Nov-17 | -2.2409% | 2.2269% | 8.6687% | 1.5293% |
| 6 | 4-Dec-17 | -0.9841% | 0.7554% | 5.6980% | 0.3512% |
| 7 | 11-Dec-17 | 2.7198% | 0.5289% | 2.3625% | 0.9168% |
| 8 | 18-Dec-17 | 0.5968% | -1.5205% | 1.9672% | 0.2814% |
| 9 | 25-Dec-17 | -3.3001% | 0.4109% | -0.7899% | -0.3626% |
| 10 | 1-Jan-18 | 3.4068% | 1.1225% | -1.7302% | 2.6010% |
| 11 | 8-Jan-18 | 1.1923% | -0.2775% | 1.6204% | 1.5708% |
| 12 | 15-Jan-18 | 0.7741% | 1.4668% | -0.4753% | 0.8635% |
| 13 | 22-Jan-18 | -3.8916% | 1.2742% | -6.5013% | 2.2265% |
| 14 | 29-Jan-18 | -6.4234% | -5.0327% | -3.4767% | -3.8547% |
| 15 | 5-Feb-18 | -2.5435% | -5.0677% | -5.4626% | -5.1620% |
| 16 | 12-Feb-18 | 10.6908% | -1.8712% | 5.0018% | 4.3011% |
| 17 | 19-Feb-18 | 1.7815% | 3.3355% | -0.4815% | 0.5519% |
| 18 | 26-Feb-18 | 0.4004% | -9.0662% | -0.3110% | -2.0402% |
| 19 | 5-Mar-18 | 2.1421% | 6.7192% | 3.2588% | 3.5418% |
| 20 | 12-Mar-18 | -1.0876% | 3.2562% | 2.2327% | -1.2402% |
| 21 | 19-Mar-18 | -7.3475% | -4.5455% | -6.8637% | -5.9502% |
| 22 | 26-Mar-18 | 1.7224% | 0.9033% | 0.9873% | 2.0326% |
| 23 | 2-Apr-18 | 0.3530% | 3.1142% | -3.4742% | -1.3783% |
| 24 | 9-Apr-18 | 3.7739% | 0.2977% | -0.3979% | 1.9900% |
| 25 | 16-Apr-18 | -5.1591% | -1.8302% | -0.5448% | 0.5210% |
| 26 | 23-Apr-18 | -2.0475% | -0.2960% | -2.2640% | -0.0086% |
| 27 | 30-Apr-18 | 13.2468% | 4.2514% | -1.4011% | -0.2431% |
| 28 | 7-May-18 | 2.5939% | 0.2181% | -0.6063% | 2.4142% |
(a) Extract for each week, the yield of the 26-week Treasury bill (or equivalently the 90 day or 180-day bank accepted bill from the financial media (i.e. Federal Reserve Bank: http://www.federalreserve.gov/default.htm) over your sample period. (Remember sometimes reported yields are usually annualised figures. Convert the yields to weekly numbers. Use these as a proxy for the risk free rate).
(b) Estimate the Security Characteristic Line (SCL) for each of your stocks and the equal weighted portfolio, based on the ‘Market Model’, using excess returns (discrete returns less the risk free rate), using Excel regression analysis functions. Show your results graphically. From your results, compute the Beta and the Jensen’s Alpha of each stock and the portfolio.
(c) Calculate the total risk (the return variance) of each stock and the portfolio. Partition the total risk to their respective systematic and unsystematic risk components.
(d) Based on your observations and results in parts (b) and (c) above, comment on each of your stock's and portfolio's performance, and on their risk characteristics, comparing and contrasting the magnitude and the proportions of their systematic and unsystematic risk components. What further insights can you gain on the characteristics and behaviour of your stocks and portfolio compared to the analysis and observations you made in Part 1 (c) and Part 2 (b)?
Solutions
Expert Solution
Answer a)
| Weekly discrete rate of returns | Treasury bill | |||||||
| Week | Date | Apple Inc. (AAPL) | McDonald's Corporation (MCD) | Southwest Airlines Co. (LUV) | S&P 500 Index (GSPC) | Date | Annual 180-Day Bank Accepted Bill Rate | Weekly 180-Day Bank Accepted Bill Rate |
| 1 | 30-Oct-17 | 30-Oct-17 | ||||||
| 2 | 6-Nov-17 | 1.2549% | -1.8187% | -1.1872% | -0.2141% | 6-Nov-17 | 1.28% | 0.00024615 |
| 3 | 13-Nov-17 | -2.2355% | 0.6847% | 2.2714% | -0.1336% | 13-Nov-17 | 1.35% | 0.00025962 |
| 4 | 20-Nov-17 | 2.8316% | 1.4330% | 0.7893% | 0.9140% | 20-Nov-17 | 1.43% | 0.00027500 |
| 5 | 27-Nov-17 | -2.2409% | 2.2269% | 8.6687% | 1.5293% | 27-Nov-17 | 1.39% | 0.00026731 |
| 6 | 4-Dec-17 | -0.9841% | 0.7554% | 5.6980% | 0.3512% | 4-Dec-17 | 1.42% | 0.00027308 |
| 7 | 11-Dec-17 | 2.7198% | 0.5289% | 2.3625% | 0.9168% | 11-Dec-17 | 1.44% | 0.00027692 |
| 8 | 18-Dec-17 | 0.5968% | -1.5205% | 1.9672% | 0.2814% | 18-Dec-17 | 1.48% | 0.00028462 |
| 9 | 25-Dec-17 | -3.3001% | 0.4109% | -0.7899% | -0.3626% | *25-Dec-17 | 1.49% | 0.00028654 |
| 10 | 1-Jan-18 | 3.4068% | 1.1225% | -1.7302% | 2.6010% | *1-Jan-18 | 1.58% | 0.00030385 |
| 11 | 8-Jan-18 | 1.1923% | -0.2775% | 1.6204% | 1.5708% | 8-Jan-18 | 1.57% | 0.00030192 |
| 12 | 15-Jan-18 | 0.7741% | 1.4668% | -0.4753% | 0.8635% | *15-Jan-18 | 1.60% | 0.00030769 |
| 13 | 22-Jan-18 | -3.8916% | 1.2742% | -6.5013% | 2.2265% | 22-Jan-18 | 1.62% | 0.00031154 |
| 14 | 29-Jan-18 | -6.4234% | -5.0327% | -3.4767% | -3.8547% | 29-Jan-18 | 1.63% | 0.00031346 |
| 15 | 5-Feb-18 | -2.5435% | -5.0677% | -5.4626% | -5.1620% | 5-Feb-18 | 1.64% | 0.00031538 |
| 16 | 12-Feb-18 | 10.6908% | -1.8712% | 5.0018% | 4.3011% | 12-Feb-18 | 1.78% | 0.00034231 |
| 17 | 19-Feb-18 | 1.7815% | 3.3355% | -0.4815% | 0.5519% | *19-Feb-18 | 1.83% | 0.00035192 |
| 18 | 26-Feb-18 | 0.4004% | -9.0662% | -0.3110% | -2.0402% | 26-Feb-18 | 1.83% | 0.00035192 |
| 19 | 5-Mar-18 | 2.1421% | 6.7192% | 3.2588% | 3.5418% | 5-Mar-18 | 1.82% | 0.00035000 |
| 20 | 12-Mar-18 | -1.0876% | 3.2562% | 2.2327% | -1.2402% | 12-Mar-18 | 1.85% | 0.00035577 |
| 21 | 19-Mar-18 | -7.3475% | -4.5455% | -6.8637% | -5.9502% | 19-Mar-18 | 1.94% | 0.00037308 |
| 22 | 26-Mar-18 | 1.7224% | 0.9033% | 0.9873% | 2.0326% | 26-Mar-18 | 1.90% | 0.00036538 |
| 23 | 2-Apr-18 | 0.3530% | 3.1142% | -3.4742% | -1.3783% | 2-Apr-18 | 1.88% | 0.00036154 |
| 24 | 9-Apr-18 | 3.7739% | 0.2977% | -0.3979% | 1.9900% | 9-Apr-18 | 1.89% | 0.00036346 |
| 25 | 16-Apr-18 | -5.1591% | -1.8302% | -0.5448% | 0.5210% | 16-Apr-18 | 1.94% | 0.00037308 |
| 26 | 23-Apr-18 | -2.0475% | -0.2960% | -2.2640% | -0.0086% | 23-Apr-18 | 1.99% | 0.00038269 |
| 27 | 30-Apr-18 | 13.2468% | 4.2514% | -1.4011% | -0.2431% | 30-Apr-18 | 1.99% | 0.00038269 |
| 28 | 7-May-18 | 2.5939% | 0.2181% | -0.6063% | 2.4142% | 7-May-18 | 2.00% | 0.00038462 |
Equation for SCL , intercept = Alpha , Beta = systematic risk
Expeceted return of portfolio = W1R1 + W2R2 + W3R3
Similarly Variance of portfolio = W12S12 + W22S22 + W32 S32 + 2.W1s1*W2S2* r12 + 2.W1s1*W3S3* r13+2.W2S2*W3S3r23
Where , w1,2,3 = weight of share in stock = 1/3 =0.33.
Answer B,C)
| EXCESSIVE RETURN Table From ( Stcok return - Annual 180-Day Bank Accepted Bill Rate | |||||||
| eek | Date | Apple Inc. (AAPL) | McDonald's Corporation (MCD) | Southwest Airlines Co. (LUV) | S&P 500 Index (GSPC) | Porfolio return | |
| 1 | 30-Oct-17 | ||||||
| 2 | 6-Nov-17 | -0.03% | -3.10% | -2.47% | -1.49% | -1.86% | |
| 3 | 13-Nov-17 | -3.59% | -0.67% | 0.92% | -1.48% | -1.11% | |
| 4 | 20-Nov-17 | 1.40% | 0.00% | -0.64% | -0.52% | 0.24% | |
| 5 | 27-Nov-17 | -3.63% | 0.84% | 7.28% | 0.14% | 1.47% | |
| 6 | 4-Dec-17 | -2.40% | -0.66% | 4.28% | -1.07% | 0.38% | |
| 7 | 11-Dec-17 | 1.28% | -0.91% | 0.92% | -0.52% | 0.41% | |
| 8 | 18-Dec-17 | -0.88% | -3.00% | 0.49% | -1.20% | -1.14% | |
| 9 | 25-Dec-17 | -4.79% | -1.08% | -2.28% | -1.85% | -2.70% | |
| 10 | 1-Jan-18 | 1.83% | -0.46% | -3.31% | 1.02% | -0.66% | |
| 11 | 8-Jan-18 | -0.38% | -1.85% | 0.05% | 0.00% | -0.73% | |
| 12 | 15-Jan-18 | -0.83% | -0.13% | -2.08% | -0.74% | -1.02% | |
| 13 | 22-Jan-18 | -5.51% | -0.35% | -8.12% | 0.61% | -4.63% | |
| 14 | 29-Jan-18 | -8.05% | -6.66% | -5.11% | -5.48% | -6.56% | |
| 15 | 5-Feb-18 | -4.18% | -6.71% | -7.10% | -6.80% | -5.95% | |
| 16 | 12-Feb-18 | 8.91% | -3.65% | 3.22% | 2.52% | 2.78% | |
| 17 | 19-Feb-18 | -0.05% | 1.51% | -2.31% | -1.28% | -0.30% | |
| 18 | 26-Feb-18 | -1.43% | -10.90% | -2.14% | -3.87% | -4.79% | |
| 19 | 5-Mar-18 | 0.32% | 4.90% | 1.44% | 1.72% | 2.18% | |
| 20 | 12-Mar-18 | -2.94% | 1.41% | 0.38% | -3.09% | -0.40% | |
| 21 | 19-Mar-18 | -9.29% | -6.49% | -8.80% | -7.89% | -8.13% | |
| 22 | 26-Mar-18 | -0.18% | -1.00% | -0.91% | 0.13% | -0.71% | |
| 23 | 2-Apr-18 | -1.53% | 1.23% | -5.35% | -3.26% | -1.88% | |
| 24 | 9-Apr-18 | 1.88% | -1.59% | -2.29% | 0.10% | -0.68% | |
| 25 | 16-Apr-18 | -7.10% | -3.77% | -2.48% | -1.42% | -4.43% | |
| 26 | 23-Apr-18 | -4.04% | -2.29% | -4.25% | -2.00% | -3.51% | |
| 27 | 30-Apr-18 | 11.26% | 2.26% | -3.39% | -2.23% | 3.32% | |
| 28 | 7-May-18 | 0.59% | -1.78% | -2.61% | 0.41% | -1.27% | |
| By use of SCL regression | |||||||
| Alpha(intercept) | 0.002030202 | -0.00551 | -0.00475 | -0.00289 | |||
| Beta(systematic risk) | 0.982335468 | 0.758977 | 0.855848 | 0.857059 | |||
| Standev | 0.044332766 | 0.03258 | 0.03612 | 0.028025 | |||
| Variance | 0.001965394 | 0.001061 | 0.001305 | 0.000785 | |||
| Unsystematic risk | -0.9380027 | -0.7264 | -0.81973 | -0.82903 |  |
||
Answer d)
It is very clear that portfolio return is higher than two stock MCD and LUV , but less than APPL and Index.
Similarly , Variance (risk) is less than all three individual stocks .
So, the portfolio is with moderate return and moderate risk category , but not able to cross the INDEX.
jeff jeffy answered 1 year agoRelated Solutions
Appendix 1.1: Table 1.1 - Weekly discrete rate of returns Week Date Apple Inc. (AAPL) McDonald's...
Appendix 1.1:
Table 1.1 - Weekly discrete rate of returns
Week
Date
Apple Inc. (AAPL)
McDonald's Corporation (MCD)
Southwest Airlines Co. (LUV)
S&P 500 Index (GSPC)
1
30-Oct-17
2
6-Nov-17
1.2549%
-1.8187%
-1.1872%
-0.2141%
3
13-Nov-17
-2.2355%
0.6847%
2.2714%
-0.1336%
4
20-Nov-17
2.8316%
1.4330%
0.7893%
0.9140%
5
27-Nov-17
-2.2409%
2.2269%
8.6687%
1.5293%
6
4-Dec-17
-0.9841%
0.7554%
5.6980%
0.3512%
7
11-Dec-17
2.7198%
0.5289%
2.3625%
0.9168%
8
18-Dec-17
0.5968%
-1.5205%
1.9672%
0.2814%
9
25-Dec-17
-3.3001%
0.4109%
-0.7899%
-0.3626%
10
1-Jan-18
3.4068%
1.1225%...
Appendix 1.1: Table 1.1 - Weekly discrete rate of returns Week Date Apple Inc. (AAPL) McDonald's...
Appendix 1.1:
Table 1.1 - Weekly discrete rate of returns
Week
Date
Apple Inc. (AAPL)
McDonald's Corporation (MCD)
Southwest Airlines Co. (LUV)
S&P 500 Index (GSPC)
1
30-Oct-17
2
6-Nov-17
1.2549%
-1.8187%
-1.1872%
-0.2141%
3
13-Nov-17
-2.2355%
0.6847%
2.2714%
-0.1336%
4
20-Nov-17
2.8316%
1.4330%
0.7893%
0.9140%
5
27-Nov-17
-2.2409%
2.2269%
8.6687%
1.5293%
6
4-Dec-17
-0.9841%
0.7554%
5.6980%
0.3512%
7
11-Dec-17
2.7198%
0.5289%
2.3625%
0.9168%
8
18-Dec-17
0.5968%
-1.5205%
1.9672%
0.2814%
9
25-Dec-17
-3.3001%
0.4109%
-0.7899%
-0.3626%
10
1-Jan-18
3.4068%
1.1225%...
Appendix 1.1: Table 1.1 - Weekly discrete rate of returns Week Date Apple Inc. (AAPL) McDonald's...
Appendix 1.1:
Table 1.1 - Weekly discrete rate of returns
Week
Date
Apple Inc. (AAPL)
McDonald's Corporation (MCD)
Southwest Airlines Co. (LUV)
S&P 500 Index (GSPC)
1
30-Oct-17
2
6-Nov-17
1.2549%
-1.8187%
-1.1872%
-0.2141%
3
13-Nov-17
-2.2355%
0.6847%
2.2714%
-0.1336%
4
20-Nov-17
2.8316%
1.4330%
0.7893%
0.9140%
5
27-Nov-17
-2.2409%
2.2269%
8.6687%
1.5293%
6
4-Dec-17
-0.9841%
0.7554%
5.6980%
0.3512%
7
11-Dec-17
2.7198%
0.5289%
2.3625%
0.9168%
8
18-Dec-17
0.5968%
-1.5205%
1.9672%
0.2814%
9
25-Dec-17
-3.3001%
0.4109%
-0.7899%
-0.3626%
10
1-Jan-18
3.4068%
1.1225%...
Week Date Apple Inc. (AAPL) McDonald's Corporation (MCD) Southwest Airlines Co. (LUV) S&P 500 Index (GSPC)...
Week
Date
Apple Inc. (AAPL)
McDonald's Corporation (MCD)
Southwest Airlines Co. (LUV)
S&P 500 Index (GSPC)
1
30-Oct-17
2
6-Nov-17
1.2549%
-1.8187%
-1.1872%
-0.2141%
3
13-Nov-17
-2.2355%
0.6847%
2.2714%
-0.1336%
4
20-Nov-17
2.8316%
1.4330%
0.7893%
0.9140%
5
27-Nov-17
-2.2409%
2.2269%
8.6687%
1.5293%
6
4-Dec-17
-0.9841%
0.7554%
5.6980%
0.3512%
7
11-Dec-17
2.7198%
0.5289%
2.3625%
0.9168%
8
18-Dec-17
0.5968%
-1.5205%
1.9672%
0.2814%
9
25-Dec-17
-3.3001%
0.4109%
-0.7899%
-0.3626%
10
1-Jan-18
3.4068%
1.1225%
-1.7302%
2.6010%
11
8-Jan-18
1.1923%
-0.2775%
1.6204%
1.5708%
12
15-Jan-18...
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2
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Date of Birth
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2
Date of Death
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3
Age at time of death
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4
Worklife Expextancy as of 9/6/88
31
5
Life Expectancy as of 9/6/88
44.54
6
Marital Status
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7
Sex
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8
Race
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9
Education
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10
Occupation
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11
Expected Trial Date
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12
Earning at time of death
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13
Benefits
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Expected...
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