Question

1 Approved Answer

Posted on Jul 23, 2024

A. [6 points] Compute the excess return for two funds (BOTZ and VIG) and two stocks (MMM and QCOM) and for the market by subtracting

A. [6 points] Compute the excess return for two funds (BOTZ and VIG) and two stocks (MMM and QCOM) and for the market by subtracting the risk-free return. Note that all returns provided are monthly. Use those excess returns to estimate the market model (single index model) for each of the 4 investments. Present the alpha, beta, and residual variance for each of the 4 investments.

B. [3 points] Using your estimate from part A, estimate the alpha and beta of the following portfolio: 20% BOTZ, 40% VIG, 20% QCOM, and 20% MMM.

C. [4 points] Is the residual variance greater for the individual stocks (MMM, QCOM) or for the funds (BOTZ and VIG)? Why do you think that is the case?

D. [4 points] Plot the 4 investments on the security market line.

E. [4 points] Estimate the Fama-French 3-factor model and report the coefficients, t-statistics, and the R2.

image text in transcribed

VIG date BOTZ 20170131 8.77% 20170228 1.69% 20170331 4.66% 20170428 3.44% 20170531 3.62% 20170630 0.26% 20170731 6.55% 20170831 3.12% 20170929 6.10% 20171031 8.51% 20171130 1.31% 20171229 -0.87% 20180131 11.69% 20180228 -6.91% 20180329 -1.83% 20180430 4.51% 20180531 0.61% 20180629 -5.29% 20180731 1.36% 20180831 3.32% 20180928 -0.74% 20181031 -13.81% 20181130 -0.05% 20181231 -13.84% 20190131 10.27% 20190228 5.74% 20190329 2.87% 20190430 7.12% 20190531 -12.60% 20190628 11.17% 20190731 -5.45% 20190830 -4.18% 20190930 6.49% 20191031 3.85% 20191129 3.17% 20191231 2.10% MMM QCOM 1.76% -2.10% -18.05% 4.33% 7.27% 6.70% -0.07% 2.67% 1.52% 1.72% 2.35% -6.28% 1.57% 5.01% 7.63% 0.28% 1.82% -3.58% 0.73% -3.37% -3.68% -0.36% 2.15% -0.66% 2.38% 2.73% -0.82% 2.10% 9.67% -1.60% 4.48% 6.14% 31.17% 1.44% -3.20% -3.50% 5.02% 6.43% 6.61% -4.03% -5.44% -3.93% -1.35% -6.79% -14.75% -0.93% -11.45% -7.94% 1.77% 2.16% 15.15% 0.30% -0.26% -3.44% 4.68% 7.93% 14.20% 2.80% -0.02% 7.21% 1.68% -0.10% 5.73% -6.36% -9.71% -12.69% 4.14% 10.00% -7.36% -8.73% -8.36% -1.25% 6.32% 5.12% -12.99% 4.58% 4.26% 7.82% 1.14% 0.19% 7.98% 3.72% -8.79% 51.03% -4.63% -14.94% -22.42% 6.62% 8.51% 14.77% 2.23% 0.80% -3.83% 0.59% -6.62% 6.30% 1.45% 1.66% -1.12% 0.03% 0.36% 5.45% 2.45% 3.77% 3.87% 2.22% 3.92% 6.34% Market SMB HML 1.98% -1.04% -2.77% 3.61% -1.99% -1.78% 0.20% 1.16% -3.25% 1.14% 0.71% -2.05% 1.12% -2.59% -3.69% 0.84% 2.15% 1.43% 1.94% -1.47% -0.33% 0.25% -1.60% -2.30% 2.60% 4.47% 3.11% 2.34% -1.94% 0.07% 3.20% -0.59% -0.06% 1.15% -1.31% 0.27% 5.69% -3.10% -1.24% -3.54% 0.30% -1.02% -2.23% 4.05% -0.14% 0.43% 1.14% 0.46% 2.79% 5.28% -3.15% 0.62% 1.18% -2.27% 3.35% -2.21% 0.58% 3.60% 1.08% -3.87% 0.21% -2.24% -1.70% -7.49% -4.91% 3.62% 1.87% -0.69% 0.20% -9.36% -2.54% -1.88% 8.62% 2.94% -0.56% 3.58% 2.10% -2.72% 1.29% -3.06% -4.20% 4.17% -1.77% 2.00% -6.73% -1.25% -2.15% 7.11% 0.20% -0.82% 1.38% -2.06% 0.30% -2.42% -2.43% -4.93% 1.61% -0.99% 6.78% 2.21% 0.27% -2.09% 3.99% 0.85% -1.87% 2.91% 0.71% 1.93% Risk Free 0.04% 0.04% 0.03% 0.05% 0.06% 0.06% 0.07% 0.09% 0.09% 0.09% 0.08% 0.09% 0.11% 0.11% 0.12% 0.14% 0.14% 0.14% 0.16% 0.16% 0.15% 0.19% 0.18% 0.19% 0.21% 0.18% 0.19% 0.21% 0.21% 0.18% 0.19% 0.16% 0.18% 0.15% 0.12% 0.14% VIG date BOTZ 20170131 8.77% 20170228 1.69% 20170331 4.66% 20170428 3.44% 20170531 3.62% 20170630 0.26% 20170731 6.55% 20170831 3.12% 20170929 6.10% 20171031 8.51% 20171130 1.31% 20171229 -0.87% 20180131 11.69% 20180228 -6.91% 20180329 -1.83% 20180430 4.51% 20180531 0.61% 20180629 -5.29% 20180731 1.36% 20180831 3.32% 20180928 -0.74% 20181031 -13.81% 20181130 -0.05% 20181231 -13.84% 20190131 10.27% 20190228 5.74% 20190329 2.87% 20190430 7.12% 20190531 -12.60% 20190628 11.17% 20190731 -5.45% 20190830 -4.18% 20190930 6.49% 20191031 3.85% 20191129 3.17% 20191231 2.10% MMM QCOM 1.76% -2.10% -18.05% 4.33% 7.27% 6.70% -0.07% 2.67% 1.52% 1.72% 2.35% -6.28% 1.57% 5.01% 7.63% 0.28% 1.82% -3.58% 0.73% -3.37% -3.68% -0.36% 2.15% -0.66% 2.38% 2.73% -0.82% 2.10% 9.67% -1.60% 4.48% 6.14% 31.17% 1.44% -3.20% -3.50% 5.02% 6.43% 6.61% -4.03% -5.44% -3.93% -1.35% -6.79% -14.75% -0.93% -11.45% -7.94% 1.77% 2.16% 15.15% 0.30% -0.26% -3.44% 4.68% 7.93% 14.20% 2.80% -0.02% 7.21% 1.68% -0.10% 5.73% -6.36% -9.71% -12.69% 4.14% 10.00% -7.36% -8.73% -8.36% -1.25% 6.32% 5.12% -12.99% 4.58% 4.26% 7.82% 1.14% 0.19% 7.98% 3.72% -8.79% 51.03% -4.63% -14.94% -22.42% 6.62% 8.51% 14.77% 2.23% 0.80% -3.83% 0.59% -6.62% 6.30% 1.45% 1.66% -1.12% 0.03% 0.36% 5.45% 2.45% 3.77% 3.87% 2.22% 3.92% 6.34% Market SMB HML 1.98% -1.04% -2.77% 3.61% -1.99% -1.78% 0.20% 1.16% -3.25% 1.14% 0.71% -2.05% 1.12% -2.59% -3.69% 0.84% 2.15% 1.43% 1.94% -1.47% -0.33% 0.25% -1.60% -2.30% 2.60% 4.47% 3.11% 2.34% -1.94% 0.07% 3.20% -0.59% -0.06% 1.15% -1.31% 0.27% 5.69% -3.10% -1.24% -3.54% 0.30% -1.02% -2.23% 4.05% -0.14% 0.43% 1.14% 0.46% 2.79% 5.28% -3.15% 0.62% 1.18% -2.27% 3.35% -2.21% 0.58% 3.60% 1.08% -3.87% 0.21% -2.24% -1.70% -7.49% -4.91% 3.62% 1.87% -0.69% 0.20% -9.36% -2.54% -1.88% 8.62% 2.94% -0.56% 3.58% 2.10% -2.72% 1.29% -3.06% -4.20% 4.17% -1.77% 2.00% -6.73% -1.25% -2.15% 7.11% 0.20% -0.82% 1.38% -2.06% 0.30% -2.42% -2.43% -4.93% 1.61% -0.99% 6.78% 2.21% 0.27% -2.09% 3.99% 0.85% -1.87% 2.91% 0.71% 1.93% Risk Free 0.04% 0.04% 0.03% 0.05% 0.06% 0.06% 0.07% 0.09% 0.09% 0.09% 0.08% 0.09% 0.11% 0.11% 0.12% 0.14% 0.14% 0.14% 0.16% 0.16% 0.15% 0.19% 0.18% 0.19% 0.21% 0.18% 0.19% 0.21% 0.21% 0.18% 0.19% 0.16% 0.18% 0.15% 0.12% 0.14%