Вы находитесь на странице: 1из 12

1. Download 3 years (1/1/2014 to 1/1/2017) of monthly data from Yahoo!

Finance for Amazon,


Inc. (AMZN), The Proctor and Gamble Company (PG), and Activision Blizzard, Inc. (ATVI).
Compute the monthly holding period returns to the securities. Fill in the following table with the
first few rows of your results:

Date AMZN AMZN PG Price PG Returns ATVI Price


ATVI
Price Returns Returns
1/1/2014 358.69 76.62000 - 17.12999 --
3 9

2/1/2014 362.10 .0095 0.026624 19.35 0.129597


78.66000 914 264
4

3/1/2014 336.36 -.0711 80.59999 0.024663 20.44000 0.056330


8 03 1 801

4/1/2014 304.13 -.0958 82.55000 0.024193 20.01 -


3 611 0.021037
23

2. Compute the arithmetic and geometric averages and the sample standard deviation for each
securitys returns over the 3 year period. Fill in the following table:

AMZN PG ATVI
Arithmetic average 0.024671336 0.0032988 0.024181464

Geometric average -0.036301524 -0.016159767 0.003587444

Sample standard deviation 0.085389034 0.0362366 0.073610795

3. Compute the Sharpe ratio for each security. Please use the arithmetic average for your
expected returns. Assume a monthly risk free rate of 0.137%. Fill in the following table:

AMZN PG ATVI
Sharpe Ratio 0.272884407 0.053227955 0.309892914

4. Compute a correlation matrix for your three securities. Fill in the following table:

1
AMZN PG ATVI
AMZN 1 -- --
PG 0.025534668 1 --

ATVI 0.584487746 0.136276393 1

5. Create a portfolio by varying the proportion of your budget between AMZN and PG. Compute the
portfolio standard deviation and expected (average) return. Use the arithmetic average for your expected
return calculation. Fill in the following table:

Weight in AMZN Weight in PG Portfolio standard Portfolio expected


deviation return
0 1 0.0362366 0.0032988
0.1 0.9 0.033922536 0.005436054
0.2 0.8 0.034019302 0.007573307
0.3 0.7 0.036507733 0.009710561
0.4 0.6 0.040954162 0.011847814
0.5 0.5 0.046803839 0.013985068
0.6 0.4 0.053599277 0.016122322
0.7 0.3 0.061025346 0.018259575
0.8 0.2 0.068878374 0.020396829
0.9 0.1 0.077027886 0.022534082
1 0 0.085389034 0.024671336

6. Plot your portfolio expected return (y-axis) and standard deviation (x-axis). Make sure to title your
graph and label your axes. The space below is left for your graph.

2
Portfolio expected return

Portfolio expected
return

7. Use Solver to find the optimal risky portfolio (maximum Sharpe ratio) for your portfolio created with
AMZN and PG. Assume no short sales are allowed. Fill in the table below:
(Important!! remember that it is possible to get a result that puts all your money in one security)

Weight in AMZN Weight in PG Portfolio standard Portfolio expected


deviation return
0.713538317 0.286461683 0.062067024 0.018548923

8. Compute the Sharpe ratio for this optimal risky portfolio. Assume a monthly risk free rate equal to
0.137%. How does this Sharpe ratio compare to the Sharpe ratio of each individual security (computed in
#3)? Explain your result.
(Note: I am looking for an intuitive explanation here do not say the number is larger or smaller
because a number in a formula is larger or smaller.)

0.276780198

3
9. Create a portfolio by varying the proportion of your AMZNget between AMZN and ATVI. Compute
the portfolio standard deviation and expected (average) return. Use the arithmetic average for your
expected return calculation. Fill in the following table:

Weight in AMZN Weight in ATVI Portfolio standard Portfolio expected


deviation return
0 1 0.073610795 0.024181464
0.1 0.9 0.071576721 0.024230451
0.2 0.8 0.070250612 0.024279438
0.3 0.7 0.069672903 0.024328425
0.4 0.6 0.069862163 0.024377413
0.5 0.5 0.070812244 0.0244264
0.6 0.4 0.072493237 0.024475387
0.7 0.3 0.074855918 0.024524374
0.8 0.2 0.077838237 0.024573361
0.9 0.1 0.081372092 0.024622349
1 0 0.085389034 0.024671336

10. Plot your portfolio expected return (y-axis) and standard deviation (x-axis). Make sure to title your
graph and label your axes. The space below is left for your graph.

4
Portfolio Expected Return
(Amazon + ATVI)

11. Use Solver to find the optimal risky portfolio (maximum Sharpe ratio) for your portfolio created with
AMZN and ATVI. Assume no short sales are allowed. Fill in the table below:
(Important!! remember that it is possible to get a result that puts all your money in one security)

Weight in AMZN Weight in ATVI Portfolio standard Portfolio expected


deviation return
0.344667486 0.655332514 0.069662446 0.024350307

12. Compute the Sharpe ratio for this optimal risky portfolio (made of AMZN and ATVI). Assume a
monthly risk free rate equal to 0.025%. Fill in the table below.

Sharpe Ratio 0.329880846

5
13. Create a portfolio by varying the proportion of your budget between PG and ATVI. Compute the
portfolio standard deviation and expected (average) return. Use the arithmetic average for your expected
return calculation. Fill in the following table:

Weight in PG Weight in ATVI Portfolio standard Portfolio expected


deviation return
0 1 0.073610795 0.024181464
0.1 0.9 0.066840007 0.022093197
0.2 0.8 0.060305194 0.020004931
0.3 0.7 0.05409195 0.017916665
0.4 0.6 0.04832447 0.015828398
0.5 0.5 0.043181735 0.013740132
0.6 0.4 0.038912244 0.011651866
0.7 0.3 0.03582954 0.009563599
0.8 0.2 0.034255536 0.007475333
0.9 0.1 0.034397967 0.005387066
1 0 0.0362366 0.0032988

14. Plot your portfolio expected return (y-axis) and standard deviation (x-axis). Make sure to title your
graph and label your axes. The space below is left for your graph.

6
15. Use Solver to find the optimal risky portfolio (maximum Sharpe ratio) for your portfolio created with
PG and ATVI. Assume no short sales are allowed. Fill in the table below:
(Important!! remember that it is possible to get a result that puts all your money in one security)

Weight in PG Weight in ATVI Portfolio standard Portfolio expected


deviation return
0.068739889 0.931260111 0.06893443 0.022745992

16. Compute the Sharpe ratio for this optimal risky portfolio (made of PG and ATVI). Assume a monthly
risk free rate equal to 0.137%. Fill in the table below.

Sharpe Ratio 0.310091659

17. When you create your portfolios of ATVI and either PG or AMZN, which asset gets the most portfolio
value? Why do you think this is the case?

In both portfolios ATVI gets the most weight. This means that more money is invested in ATVI than
AMZN. This is most likely because there is less risk with the ATVI investment or because ATVI provides
stronger returns than its opposition.

18. Based on your analysis, select the optimal risky portfolio in which you should invest. Assume an
absolute risk aversion (A) of 2.5. How much of your investment do you put in the risky portfolio?
How much of your investment do you put in the riskless asset (monthly average return =
0.137%)? What is your final (complete) portfolio expected return, risk, and Sharpe ratio?

The portfolio that has AMZN and ATVI has the highest sharpe ratio.

y = (Expected Return Risk Free Rate) / Risk Aversion * Standard Deviation^2 = 1.894167456

7
expected return (complete portfolio) = 0.044898549

risk (complete portfolio) = 0.131952338

Sharpe (complete portfolio) = 0.329880846

19. Using the Fama French risk free rate, compute excess return. You are going to be estimating several
models, including a CAPM and Fama French. Please use the Fama French market excess return (Mkt
rf) as your measure of the market index for all models. Fill in the following table:

Date Mkt Rf SMB HML Rf Excess Excess


AMZN ATVI
9/1/2010 -4.77 -3.12 -1.96 .01

10/1/2010 9.54 3.73 -3.12 .01

11/1/2010 3.88 .78 -2.52 .01

20. Use your excess returns to estimate a CAPM regression for each security. Use your beta estimates,
along with a monthly risk free rate of 0.025% and a monthly risk premium of 0.54% to estimate the
stocks expected returns. Continue to use your sample standard deviation of percent return ( not excess
returns) as your measure of risk. Fill in the following table:

AMZN ATVI

Alpha
Beta

Expected return
Risk

8
21. Interpret your alpha and beta coefficients for AMZN. Are they significant? What do they mean?

22. Interpret your alpha and beta coefficients for ATVI. Are they significant? What do they mean?

23. Find the optimal risky portfolio for AMZN and ATVI using:
- The expected returns derived from the CAPM as your measure of expected return for each
security
- The sample standard deviation of percent return as the measure risk for each security (from table
from question #4)
- The correlation between percent returns as your correlation (from table from question #20)
Use Solver to find your answer, and assume no shorting. Fill in the following table:

Weight AMZN Weight ATVI Portfolio return Portfolio risk Portfolio Sharpe

9
24. Use your excess returns to estimate a Fama French regression for each security. Use your coefficient
estimates, along with a monthly risk free rate of 0.025%, a monthly risk premium of 0.54%, a monthly
SMB of 0.21%, and a monthly HML of 0.37% to estimate the stocks expected returns. Continue to use
your sample standard deviation of percent return (not excess returns) as your measure of risk. Fill in
the following table:

AMZN ATVI

Alpha
Beta

s (SMB beta)

h (HML beta)

Expected return

Risk

25. Interpret your alpha, beta, SMB coefficient (s), and HML coefficient (h) for AMZN. What do they
mean? Are they significant? (Note: you may want to do some research on the company in order to
answer this question. I would recommend referencing the companys website or a background summary
on a website like Yahoo!Finance. If you do reference any outside sources, please make sure you tell me
from where the information came.)

26. Interpret your alpha, beta, SMB coefficient (s), and HML coefficient (h) for ATVI. What do they
mean? Are they significant? (Note: you may want to do some research on the company in order to

10
answer this question. I would recommend referencing the companys website or a background summary
on a website like Yahoo!Finance. If you do reference any outside sources, please make sure you tell me
from where the information came.)

27. Find the optimal risky portfolio for AMZN and ATVI using:
- The expected returns derived from the Fama French models as your measure of expected return
for each security
- The sample standard deviation of percent return as the measure risk for each security (from table
from question #4)
- The correlation between percent returns as your correlation (from table from question #4)
Use Solver to find your answer, and assume no shorting. Fill in the following table:

Weight AMZN Weight ATVI Portfolio return Portfolio risk Portfolio Sharpe

28. You have now computed optimal risky portfolios using expected returns from historic averages,
CAPM estimates, and Fama French estimates. Which portfolio would you choose in which to invest and
why? (HINT: If you are tempted to make a decision based on the Sharpe ratio, I strongly recommend
you re-think what youve done in this assignment.)

11
12