Question

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Year Tippy Stock Sibbit Stock S&P 500

2007 -10.80% 3.85% -2.87%

2008 -3.50% -7.25% 3.39%

2009 4.90% 4.33% 1.45%

2010 2.90% 8.21% 4.56%

2011 -3.80% -2.55% -2.38%

Total -10.30% 6.59% 4.15%

Z- statistic at the 5% confidence level is 1.6449

Z- statistic at the 10% confidence level is 1.2816

Z-statistic at the 1% confidence level is 2.3263

What is the maximum expected loss for S&P at the 5% confidence level using standard deviation?

What is the maximum expected loss for stock Tippy stock at the 5% confidence level using beta?

What is the maximum dollar loss if you invest $4,000,000 in Tippy stock using beta?

What are the Sharpe and Treynor index for Sibbit stock? Assume that T-bill rate is 0.05%

Answer 1

1)

S&P 500

Average Return = (-2.87+3.39+1.45+4.56-2.38)/5

Average Return = 0.83%

Variance =((-2.87-0.83)^2 + (3.39-0.83)^2 + (1.45-0.83)^2 + (4.56-0.83)^2 + (-2.38 -0.83)^2 )/(5-1)

Variance = 11.21125

Standard Deviation = Variance^(1/2)

Standard Deviation = 11.21125^(1/2)

Standard Deviation = 3.3483%

5% confidence level using standard deviation

Maximum expected loss = Average Return - Standard Deviation*Z

Maximum expected loss = 0.83% - 3.3483%*1.6449

Maximum expected loss = -4.68%

2)

Tippy Stock

Average Return = (-10.8 -3.5 + 4.9 + 2.9 - 3.8)/5

Average Return = -2.06%

Variance =( (-10.8+ 2.06)^2 + ( -3.5+ 2.06)^2 + (4.9+ 2.06)^2 + (2.9+ 2.06)^2 + ( - 3.8+ 2.06)^2 )/(5-1)

Variance = 38.633

Standard Deviation = Variance^(1/2)

Standard Deviation = 38.633%^(1/2)

Standard Deviation = 6.2155%

1% confidence level using standard deviation

Maximum expected loss = Average Return - Standard Deviation*Z

Maximum expected loss = -2.06% - 6.2155%* 1.6449

Maximum expected loss = -12.28387 %