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Posted on Aug 03, 2024

1. Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the

1. Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest?

2. Suppose Sharpes position had been 99 percent of equity funds invested in the S&P 500 and either one percent in Reynolds or one percent in Hasbro. Estimate the resulting portfolio position. How does each stock affect the variability of the equity investment? How does this relate to your answer in question 1 above?

3. Perform a regression of each stocks monthly returns on the Index returns to compute a beta for each stock. How does this relate to your answer in question 2 above? (It is fine to find a trendline if you are not familiar with regression. See attached note for clarification.

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

5. In what stock(s) (if any) should Sharpe invest? image text in transcribed

Exhibit 1 (continued) Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 -0.78% 0.93% -2.19% 3.82% 0.19% 3.90% -0.36% 1.76% 1.15% -3.30% -0.19% -0.28% 2.30% 1.81% 3.60% 2.13% 0.91% 0.76% -1.10% 2.38% 4.73% 7.09% 6.08% 4.96% -0.61% 3.93% 0.26% 4.88% 9.96% 2.65% -4.76% 1.92% 1.71% 1.91% -5.65% -5.07% -4.12% 8.39% -1.18% 5.05% -4.29% 3.99% -6.59% -5.94% -2.32% 3.26% 8.56% 12.07% 13.93% 3.20% 1.87% INVESTMENT RETURN DATA Date Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 S&P 500 -1.70% -2.31% 4.37% -5.06% - 1.19% -7.15% -8.23% 0.64% -10.14% 7.35% 5.96% -5.50% -2.46% -1.72% 0.89% 8.12% 6.18% 1.48% 2.18% 2.34% -1.06% 5.89% 1.51% 4.39% 2.20% 1.40% -1.20% -2.56% 1.24% 2.00% -3.88% 0.11% 1.91% 1.66% 4.43% 3.34% -2.74% 2.09% -1.86% -2.66% 3.59% 0.99% 4.22% REYNOLDS 6.13% 9.87% -1.37% 6.87% 2.17% -23.97% 1.64% 7.71% -31.48% 0.57% -4.81% 9.09% 0.59% -5.78% -19.17% -12.68% 21.02% 9.15% -4.54% -3.86% 15.78% 21.47% 14.93% 5.34% 1.56% 4.52% -1.99% 7.06% -13.23% 20.27% 6.45% 4.93% -9.88% 1.21% 9.83% 3.93% 2.32% 1.90% -1.66% -3.25% 6.34% -4.96% 5.72% HASBRO 1.66% -13.27% 10.55% 1.01% -4.26% -11.37% -9.66% 7.35% -15.36% -8.18% 25.44% -9.91% 3.90% 0.92% 14.70% 15.19% 0.06% 9.24% 7.78% -1.86% 0.97% 16.70% 1.42% -3.75% -7.19% 10.73% -0.55% -13.15% 4.08% 3.36% -4.37% 1.98% 1.46% -5.90% 7.57% 1.84% 1.14% 7.76% -3.17% -7.48% 6.66% 3.02% 5.53% Exhibit 1 (continued) Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 -0.78% 0.93% -2.19% 3.82% 0.19% 3.90% -0.36% 1.76% 1.15% -3.30% -0.19% -0.28% 2.30% 1.81% 3.60% 2.13% 0.91% 0.76% -1.10% 2.38% 4.73% 7.09% 6.08% 4.96% -0.61% 3.93% 0.26% 4.88% 9.96% 2.65% -4.76% 1.92% 1.71% 1.91% -5.65% -5.07% -4.12% 8.39% -1.18% 5.05% -4.29% 3.99% -6.59% -5.94% -2.32% 3.26% 8.56% 12.07% 13.93% 3.20% 1.87% INVESTMENT RETURN DATA Date Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 S&P 500 -1.70% -2.31% 4.37% -5.06% - 1.19% -7.15% -8.23% 0.64% -10.14% 7.35% 5.96% -5.50% -2.46% -1.72% 0.89% 8.12% 6.18% 1.48% 2.18% 2.34% -1.06% 5.89% 1.51% 4.39% 2.20% 1.40% -1.20% -2.56% 1.24% 2.00% -3.88% 0.11% 1.91% 1.66% 4.43% 3.34% -2.74% 2.09% -1.86% -2.66% 3.59% 0.99% 4.22% REYNOLDS 6.13% 9.87% -1.37% 6.87% 2.17% -23.97% 1.64% 7.71% -31.48% 0.57% -4.81% 9.09% 0.59% -5.78% -19.17% -12.68% 21.02% 9.15% -4.54% -3.86% 15.78% 21.47% 14.93% 5.34% 1.56% 4.52% -1.99% 7.06% -13.23% 20.27% 6.45% 4.93% -9.88% 1.21% 9.83% 3.93% 2.32% 1.90% -1.66% -3.25% 6.34% -4.96% 5.72% HASBRO 1.66% -13.27% 10.55% 1.01% -4.26% -11.37% -9.66% 7.35% -15.36% -8.18% 25.44% -9.91% 3.90% 0.92% 14.70% 15.19% 0.06% 9.24% 7.78% -1.86% 0.97% 16.70% 1.42% -3.75% -7.19% 10.73% -0.55% -13.15% 4.08% 3.36% -4.37% 1.98% 1.46% -5.90% 7.57% 1.84% 1.14% 7.76% -3.17% -7.48% 6.66% 3.02% 5.53%