Question

In: Finance

1. On January 15, 1990, you constructed a portfolio consisting of 1,000 shares of General Electronics,...

1. On January 15, 1990, you constructed a portfolio consisting of 1,000 shares of General Electronics, 500 shares of Boeing, and 1,500 shares of Microsoft. You close the portfolio by selling all shares by March 3, 2020. (20 pt.)

  1. What is the original value of the portfolio?
  2. What is the portfolio value at the portfolio closing date?
  3. Create a graph of portfolio’s value staring from the original date to closing date. Show the graph below.
  4. Looking at the graph, did you close the portfolio at its peak? If no, what is the maximum value you could have gained if you would have been able to sell the portfolio at the peak. (Hint: Use max function in R, Google is the best resource).
  5. Using Chartseries, create a graph from January 2018 to 2020 of portfolio value. Show the graph below.

At the end, copy your R code in the file.

2. For the period from January 15, 1990 to March 3, 2020, using weekly stock returns data of the following companies, answer the following questions (20 pt.) –

  1. Fill in the following table

GE

BA

MSFT

CAPM beta

Standard deviation of stock returns

Correlation of stock returns with the returns of S&P 500 returns

Sharpe ratio

  1. Based on CAPM, find out the consequence of a 10% decrease in market return on GE, BA, and MSFT, respectively.
  2. Based on Sharpe ratio, which stock are you going to choose for a highly risk averse investor and which stock are you going to choose for a highly risk-loving investors and why? Explain in detail.

Solutions

Expert Solution

a. & B. The data has been sourced from Yahoo Finance. The calculation is based on End of the Day closing price.

The beginning and ending portfolio would be

GE Boeing MSFT Portfolio Val
No of Shares 1000 500 1500
Date/ Closing Price
15-Jan-90          5.02        19.79           0.60     15,811.00
3-Mar-20        11.21      289.27       172.79 415,029.98

The opening portfolio value on 15 Jan, 1990 = No. of shares of GE X Closing Price + Noo. of shares of Boeing X Closing Price + No. of shares of MSFT x Closing price of MSFT

Portfolio Valueon Jan 15, 1990 = $15,811

Portfolio Value on March 3, 2020 = $415,029.98

Similar formula is used for all respective dates

C. The graph is based on daily closing prices of GE, Boeing &MSFT multilied by the respective shares held for each of them.

D. Using the max function in the data, the portfolio has the maximum value on 10th Feb 2020.

Max Value of the Portfolio 468,295.00

The data has over 7000 rows, so it cant be put here.


Related Solutions

Your portfolio consists of 1,000 shares of stock A and 1,000 shares of stock B. At...
Your portfolio consists of 1,000 shares of stock A and 1,000 shares of stock B. At today's market open their respective prices per share are $7.50 and $21. What are their respective weights in the portfolio at today's market open prices? (rounded to two decimals). They have equal weights 0.40 and 0.60 0.35 and 0.65 0.26 and 0.74. 1 points    QUESTION 32 What is your portfolio's beta if stock A's beta is 1.8 and that of B is 0.4....
6.         Verysmall Mutual Fund’s investment portfolio is comprised of the following: 1,000 shares of General Mills...
6.         Verysmall Mutual Fund’s investment portfolio is comprised of the following: 1,000 shares of General Mills (GIS, current price is $50 per share); 3,000 shares of Bank of America Corp (BAC, current price is $30 per share); and 2,500 shares of United Airlines Holdings (UAL), current price is $90 per share). Verysmall Mutual Fund has sold a total of 15,000 of its own shares to customers. What is Verysmall Mutual Fund’s net asset value? A.        Less than $20 B.         Between...
You decide to invest in a portfolio consisting of 15 percent Stock X, 51 percent Stock...
You decide to invest in a portfolio consisting of 15 percent Stock X, 51 percent Stock Y, and the remainder in Stock Z. Based on the following information, what is the standard deviation of your portfolio? State of Economy Probability of State Return if State Occurs of Economy Stock X Stock Y Stock Z Normal .77 10.50% 3.90% 12.90% Boom .23 17.80% 25.80% 17.30% 2.51% 8.44% 7.24% 3.35% 5.79%
1. Assume you purchased 1,000 shares of Motorola on January 2, 2001 (a Tuesday) at $100...
1. Assume you purchased 1,000 shares of Motorola on January 2, 2001 (a Tuesday) at $100 per share. Your broker charged a commission of 1% of the value of the trade. a. How much will you owe, and when will you owe it? b. Assume you purchased the stock on margin. Your broker required a 50% initial margin and maintenance margin of 25%. How much cash would you have to come up with initially? c. At what price would you...
1. a. On January 2, you sold short 1,000 shares of ABC stock at $25 per...
1. a. On January 2, you sold short 1,000 shares of ABC stock at $25 per share. On March 2, a dividend of $1 per share was paid. On April 2, covered the short sale by buying the stock at a price of $23 per share. You paid $20 in commissions for the roundtrip ($10 to short, $10 to cover). Assuming you have no other positions, what is the value of your account on April 2? Present your answer rounded...
The shares of the U.S. automobile market held in 1990 by General Motors, Japanese manufacturers, Ford,...
The shares of the U.S. automobile market held in 1990 by General Motors, Japanese manufacturers, Ford, Chrysler, and other manufacturers were, respectively, 34%, 32%, 19%, 9%, and 6%. Suppose that a new survey of 1,000 new-car buyers shows the following purchase frequencies: GM Japanese Ford Chrysler Other 397 259 231 80 33 (a) Show that it is appropriate to carry out a chi-square test using these data. Each expected value is ≥ (b) Test to determine whether the current market...
You own a portfolio consisting of the following stocks:
You own a portfolio consisting of the following stocks: Stock        % of Portfolio        Beta        Historical Return   Required Return 1 13% 1.15 .11 2 44% 0.95 .08   3 19% 1.60 .14   4 24% 1.30 .12 The risk-free rate is 5% and the expected market return is 10%. a. Calculate the required return for each stock.   b. Calculate the historical return on the portfolio.   c. Calculate the portfolio beta. d. Calculate the required return...
An investor owns a portfolio consisting of $450,000 of IBM shares and $550,000 of Apple shares. Apple shares have a market inde
An investor owns a portfolio consisting of $450,000 of IBM shares and $550,000 of Apple shares. Apple shares have a market index beta of 1.2 whereas IBM shares have a market index beta of 0.9. The investor wishes to take a risk-minimizing hedge for this portfolio using S&P 500 index futures. The current futures prices for the S&P500 index is $2600.00 and the futures contract is for 10 units of the index. What position should the investor take in the...
Assume that it is now January 1, 2001 and you will need $1,000 on January 1,...
Assume that it is now January 1, 2001 and you will need $1,000 on January 1, 2005. Your bank compounds interest rate at an 8 per cent annual rate. I. How much must you deposit of January 1, 2002, have a balance of $1,000 on January 1, 2005? II. If you want to make equal payments on each January 1 from 2002 through 2005 to accumulate the $1,000, how large must each of the 4 payments be? III. If your...
1.) You have a portfolio consisting of Intel, GE and Con Edison. You put 20% in...
1.) You have a portfolio consisting of Intel, GE and Con Edison. You put 20% in Intel, 65% in GE and 15% in Con Edison. Intel, GE and Con Edison have betas of 0.43, 1.48 and 1.75 respectively. What is your portfolio beta? 2.) According to the CAPM, what is the expected return on a security given a market risk premium of 12%, a stock beta of 1.51, and a risk free interest rate of 1%? Put the answers in...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT