Rob McGowan collects data from General Motors, General Electric, Oracle, and Microsoft. His professor seeks to form a portfolio using these stocks.

Provide a quick rundown of the issues that the professor face while creating his portfolio. Discuss what your goals and objective would be if you were creating this portfolio, how can you “add value”. Think about issues such as efficiency, risk-return, and how to add value. Include a recommendation of a portfolio make-up (weights, or even suggestions of other stocks).

Estimate and compare the monthly returns and variability (standard deviation) of each stock with that of the DJIA Index.

Which stock appears to be riskiest? Less risky?

How might the expected return of each stock relate to its riskiness?

Suppose the professor decides to make the portfolio with equal weight of stock holding (each stock holds 25% weight in the portfolio). Estimate the resulting portfolio position.

How does each stock affect the variability of the equity investment? What is the risk and return of the portfolio?

What is the correlation between the stocks? How do you think the stocks effect the portfolio’s risk and return?

How does this relate to your answer in question 1 above?

Compute the “beta” for each stock (Use DJIA as the market return).

What does beta measure?

How does this relate to your previous answers?

What is the required rate of return for each stock (CAPM)? Explain the number and put it into context? (Use the RF rate given in the second page)

Make a recommendation of what you would do if you were professor. Would you try something different?

What would be your main objective?

How would you weigh each stock in the portfolio? Why? What would be the resulting risk and return?

In order to control costs, a company wishes to study the amount of money its sales force spends entertaining clients. The following is a random sample of six entertainment expenses (dinner costs for four people) from expense reports submitted by members of the sales force

(a) Calculate x¯x¯ , s², and s for the expense data. (Round "Mean" and "Variances" to 2 decimal places and "Standard Deviation" to 3 decimal places.)

(b) Assuming that the distribution of entertainment expenses is approximately normally distributed, calculate estimates of tolerance intervals containing 68.26 percent, 95.44 percent, and 99.73 percent of all entertainment expenses by the sales force. (Round intermediate calculations and final answers to 2 decimals.)

(c) If a member of the sales force submits an entertainment expense (dinner cost for four) of $390, should this expense be considered unusually high (and possibly worthy of investigation by the company)? Explain your answer

• Yes

• No

(d) Compute and interpret the z-score for each of the six entertainment expenses. (Round z-score calculations to 2 decimal places. Negative amounts should be indicated by a minus sign.

In order to control costs, a company wishes to study the amount of money its sales force spends entertaining clients. The following is a random sample of six entertainment expenses (dinner costs for four people) from expense reports submitted by members of the sales force

(a) Calculate x¯x¯ , s², and s for the expense data. (Round "Mean" and "Variances" to 2 decimal places and "Standard Deviation" to 3 decimal places.)

(b) Assuming that the distribution of entertainment expenses is approximately normally distributed, calculate estimates of tolerance intervals containing 68.26 percent, 95.44 percent, and 99.73 percent of all entertainment expenses by the sales force. (Round intermediate calculations and final answers to 2 decimals.)

(c) If a member of the sales force submits an entertainment expense (dinner cost for four) of $390, should this expense be considered unusually high (and possibly worthy of investigation by the company)? Explain your answer.

(d) Compute and interpret the z-score for each of the six entertainment expenses. (Round z-score calculations to 2 decimal places. Negative amounts should be indicated by a minus sign.)

Ford Motor Company is the world’s second-largest producer of cars and trucks and ranks among the largest providers of financial services in the United States. The following information pertains to Ford: (in millions)

Prepare a statement showing the trend percentages for each item, using 1998 as the base year.

Comment on the trends noted in part (a).

Using Excel

Data in Travel file shows the average number of rooms in a variety of U.S cities and the average room rate and the average amount spent on entertainment. A company that run events for hotel residents wants to predict the amount spent on entertainment based on room rate and number of rooms.

Run the regression analysis. Are the coefficients statistically significant? Do we need to drop one of these variable? Which variable? Interpret the slope of the estimated regression equation?

Develop the least squares estimated regression equation. The average room rate in Chicago is $128, predict the entertainment expense per day for Chicago.

Text exercise 39 page 638. This question uses the same data as exercise 2 above, and the data is in the accompanying spreadsheet.

(a) Estimate the regression in Excel and report the regression line.                                  [2 pts]

(b) Calculate a  95% confidence interval for the forecast of the average amount spent on entertainment at a city where the room rate is $89.                                                       [3 pts]

(b) Calculate a  90% confidence interval for the forecast of the idiosyncratic amount spent on entertainment at a city where the room rate is the average rate of $128.                        [3 pts]

(d) Use a t-test to test the hypothesis that there is a 1 to 1 relationship between entertainment expenses and hotel expenses. (ie test H0: β=1)                                                    

DATA:

Match the account name with the correct financial statement and section that the account name can be found on (apologize for format congruence)  

Advertising Expense

Options to choose from:

Balance Sheet - Current Asset

Balance Sheet - Non Current Asset

Balance Sheet - Current Liability

Balance Sheet - Non Current Liability

Balance Sheet - Equity

Income Statement - Revenue (part of the Gross Profit calculation)

Income Statement - Operating expenses

Income Statement - Other

Thanks

In order to control costs, a company wishes to study the amount of money its sales force spends entertaining clients. The following is a random sample of six entertainment expenses (dinner costs for four people) from expense reports submitted by members of the sales force.

(a) Calculate x¯x¯ , s², and s for the expense data. (Round "Mean" and "Variances" to 2 decimal places and "Standard Deviation" to 3 decimal places.)

(b) Assuming that the distribution of entertainment expenses is approximately normally distributed, calculate estimates of tolerance intervals containing 68.26 percent, 95.44 percent, and 99.73 percent of all entertainment expenses by the sales force. (Round intermediate calculations and final answers to 2 decimals.)

(c) If a member of the sales force submits an entertainment expense (dinner cost for four) of $390, should this expense be considered unusually high (and possibly worthy of investigation by the company)? Explain your answer.

• Yes

• No

(d) Compute and interpret the z-score for each of the six entertainment expenses. (Round z-score calculations to 2 decimal places. Negative amounts should be indicated by a minus sign.)