Each team member should pick 2 stocks that you would like to invest in. The stocks you choose must have been listed for trading (public) since at least January 1, 2015. a. Make sure to have a well-diversified portfolio with companies in different industries and sectors of the economy. b. Specify your investment objective for your portfolio (i.e. growth, income, etc.) and justify your chosen objective (explain why it is appropriate for your team). c. Provide the following information about each stock. You can find the information at http://finance.yahoo.com/, https://www.msn.com/en-us/money, or various other financial sites. This information can be provided as an Exhibit within your write-up or at the end. i. Name of the company ii. Ticker Symbol iii. Dividends/share (if any) iv. Beta v. Forward P/E Ratio 2. Risk Calculations and Explanation (Chp. 3) a. Calculate the standard deviation for each stock to measure total risk for the company. i. Use a sample size of 5 years. You will first need to look up or calculate the returns on each stock for the last five years and find the average annual return. ii. If you need to calculate the returns, use the holding period return formula for each year and be sure to include any dividends paid each year. Determine the average return. iii. Use the average return and annual returns to calculate the standard deviation for each stock. b. Calculate the portfolio standard deviation i. Assume each stock has equal weight in your portfolio each year and calculate the weighted average portfolio return for each of the five years. ii. Find the average portfolio return over the five years and use this to calculate the portfolio standard deviation (this is not simply a weighted average of the stock standard deviations; you must use the standard deviation formula for this calculation). c. Describe your risk for each stock and your portfolio. i. Look up the S&P 500 (market proxy) standard deviation ii. Compare your portfolio risk to the overall market (S&P 500 risk). Is your portfolio more or less risky than the overall market? 3. Using your portfolio average return as the compounding rate, use TVM to determine how long it will take your portfolio to double in value. You can use any portfolio value as your PV as long as the FV is double that amount. 4. Choose only one stock in your team's portfolio and calculate your required (expected) return using the CAPM (SML) formula. (Chp. 4) a. Use the beta from part 1.c. b. Use the S&P 500 Index to determine the current annual market return. You may need to calculate this (holding period, Chp. 3) return over the prior 12 months. You can find the S&P 500 index price data at the two web sites listed above. c. Look up the current yield on ten-year U.S. Treasury securities to find the risk-free rate at http://www.federalreserve.gov/releases/h15/update/ (rates are stated as annual rates on this site). 5. Determine the value of the stock you chose in part 3. (Chp. 11) a. Use the required return you calculated in part 4 for the valuation. b. If a dividend is paid, determine if it is fixed or growing annually. i. If it is growing, determine the growth rate. The average growth rate for the previous four years is acceptable. It is possible to have negative growth if the dividend is decreasing. c. Use the Dividend Discount model, Constant Growth Dividend model, or the P/E Multiplier model (if no dividends are paid) for valuation. You should use a dividend growth model if a dividend is paid. d. Compare your stock's value to the current market price; is the stock currently overvalued or undervalued in the market? 6. Assume you purchased $1000 worth of this stock at the start of the last 12 months (one year ago) and sold it at the end of the 12thmonth (today). Purchases of partial shares are allowed. a. Determine your dollar return and percentage return on your investment (do not forget to include any income/dividends earned on the investment in your calculation). You will first need to determine how many shares you were able to purchase with your $1,000 investment 12 months ago (based on the price then), and then determine the value of those of shares based on today's price. b. Look up the current inflation rate and calculate your real rate of return (inflation adjusted rate). http://www.usinflationcalculator.com/inflation/current-inflation-rates/. 7. Based on the information you have provided in numbers 1-6 above; provide a brief analysis of the risk of investing in the one stock chosen from your portfolio. a. Consider the stock standard deviation and beta as well as the portfolio and market standard deviation. b. Would you be willing to invest your money? Why or why not? c. Include a discussion of the risk of this one stock compared to the risk of the portfolio.