Question

Please download historical monthly price data for General Electric (GE) from Yahoo Finance for the period of 01/December/2007 – 01/December/2018.

(a) Please calculate the monthly return.

(b) Please calculate the annual stock returns.

(c) An analyst expects the return for GE stock to be 10% lower than the historical average while its volatility to be 20% higher. Assume that the probability distribution of the returns of GE stock for 2019 is normal with the expected value and standard deviation as per the analyst’s beliefs. What is the probability that the return on GE in 2019 will be at least 10%? Please demonstrate the steps, specifically with calculating the monthly return

Answer 1

Part (a)

1. Please download the data from https://in.finance.yahoo.com/quote/GE/history?period1=1196447400&period2=1546281000&interval=1mo&filter=history&frequency=1mo
2. Retain the data on Adj Close price, this price if adjusted for stock split and dividends
3. Monthly return = P_m / P_m-1 - 1

Please see the snapshot from my excel model

Monthly return = - 0.48%

Part (b)

Mean Annual return = - 3.65%

Part (c)

Mean = - 3.65% - 10% = -13.65%

Std dev = 31.58% + 20% = 51.58%

Z = (R - mean) / Std dev = [10% - (-13.65%)] / 51.58%= 0.45862

P (R > 10%) = P (Z > 0.45862 ) = 1 - P (Z < 0.45862) = 1 - 0.6730 = 0.3270 = 32.70%