Question

The stocks are as follows: Macy's, Microsoft, Amazon, Facebook and Apple. Create a portfolio that invests 24% of $1 million in company A, 22% in company B, 20% in company C, 18% in company D, and 16% in company E.

What is the buy-and-hold return (HPR) for each of the 5 stocks and for the portfolio during the last calendar year (2018). This means you are buying on Dec 31, after markets close, and selling on Dec 31 of the following year, after markets close. Please make sure to show your work. You will need stock price/return data on the 5 companies. To get the stock price/return data, go to Yahoo Finance, enter the ticker, click on “Historical Prices”, select the start and end date, and make sure “daily” is selected. Click on “Get Prices”, and use Adj. Close to calculate returns (Adj. Close adjusts for dividends, stock splits, etc.).

Answer 1

Macy's:

24 % of $1 Million in Macy's = $0.24 Million

Price of Macy's on Dec 31 2017 after market close was 25.95 while on Dec 31 2018 was 26.30, Hence return during this period will be 1.34%

Microsoft:

22 % of $1 Million in Microsoft = $0.22 Million

Price of Microsoft on Dec 31 2017 after market close was 95.01 while on Dec 31 2018 was 104.43, Hence return during this period will be 9.91%.

Amazon:

20 % of $1 Million in Amazon = $0.20 Million

Price of Amazon on Dec 31 2017 after market close was 1450.89 while on Dec 31 2018 was 1718.73, Hence return during this period will be 18.46%.

Facebook:

18 % of $1 Million in Facebook = $0.18 Million

Price of Facebook on Dec 31 2017 after market close was 186.89 while on Dec 31 2018 was 166.69, Hence return during this period will be -10.80%.

Apple:

16 % of $1 Million in Apple = $0.16 Million

Price of Apple on Dec 31 2017 after market close was 167.43 while on Dec 31 2018 was 166.44, Hence return during this period will be -0.59%

To arrive at holding period return we need to take weighted average of portfolio:

(1.34%*24 + 9.91%*22 + 18.46*20 + (-10.8%*18) + (-0.59%*16)) / 100

= 4.15%

Hence holding period return for portfolio is 4.15%