FINANCE 310

INVESTMENTS

FALL 2018

INVESTMENTS PROJECT

PART I

The Point of the Project

You are a portfolio manager, and you are trying to put together a portfolio that is designed to beat the market (represented here by the S&P 500 index). To do this you will first pick ten stocks, and then you will figure out how much of each of them to buy, using monthly data from the last five years to make your decisions. You have 100 million dollars to play with.

You will decide if you have beaten the S&P 500 by looking at the performance of your portfolio over the period August 8^thNovember 8^th. To do this you will compare the risk-adjusted returns of your portfolio with the risk-adjusted return of the S&P. The project has three parts.

Project Part I

You need to answer the following questions:

(1 point) Pick ten stocks. The stocks must all be part of the S&P 500 index. Make sure the stocks have at least five years of pricing data.

(1.5 points) How did your ten stocks perform in the last month?

(2 points) How did the market do? Mention at least two events that may explain why the market return makes sense. Did any of your stocks have higher returns than the market index?

(2 points) For two of your stocks find at least one news story that may explain why these stocks had higher or lower returns than the market index.

(2 points) Assume you had a working crystal ball (that gives you a perfect forecast of the future) on August 8^th. How would you have invested over the past month? Assume you can only pick one stock. Further assume that you set up the investment on August 8^th and do not make any other transactions (i.e., buying, selling or shorting) until September 7^th. The margin is 50% for both short selling and buying on margin. Calculate the return of this investment.

(1.5 points) Repeat Q5, but assume that there are no margin requirements? How much would you pay for the crystal ball?

Make a title page that includes your name and section number and anything else you deem helpful. You should hand in a hard-copy at the beginning of class. Include answers to all the questions and any supporting material you think is helpful. Make it presentable to a client, or a prospective employer. It should be user friendly, concise, well-written, neat and convincing. Print only the relevant parts of the spreadsheet. The answers should be brief, but convincing. Make it easy to find your answers. Include supporting material in the appendix. Practice good printing etiquette. Write well. The assignment should be maximum three pages (including any appendix, but excluding the title page).

DETAILED INSTRUCTIONS

Try to follow these instructions at closely as possible.

Pick ten stocks. The stocks must all be part of the S&P 500 index. Make sure the stocks have at least five years of pricing data.

Here are a couple places to look for a list of the 500 companies currently in the S&P 500:

https://en.wikipedia.org/wiki/List_of_S%26P_500_companies

http://money.cnn.com/data/markets/sandp/

The company must have 5 years of pricing data. An easy way to check this is to find the companys stock price chart in finance.yahoo.com or finance.google.com. Make sure that when you click on 5y (5 years) there are prices available starting in early 2012.

How did your ten stocks perform in the past month?

Last month is from the start of trading August 8th to the end of trading on September 7th.

You must first download historical data for each stock. Go to finance.yahoo.com and type in the stocks ticker symbol (or name).

In the left column click on Historical Prices.

In Set Date Range select the relevant range (i.e., the last month as specified in (a)). Click Get Prices.

At the bottom of the page select Download to Spreadsheet. Excel will now open with the date you selected. Repeat parts b-e for all ten stocks.

In total you should now have ten spreadsheets with historical prices for the past month. It may be helpful to consolidate these ten spreadsheets into one sheet by copying the Adjusted Close columns for each stock into a new spreadsheet.

You are interested in the Adjusted Close column. Yahoo! downloads price data that have been adjusted for dividends and stock splits. So you wont have to worry about either of these events.

You now have prices for each, but you are interested in returns. So we have to calculate daily holding period returns (HPR)!

To do this you want to use the formula for HPR from the slides. Note that we can disregard dividends (see part g.). The daily HPR for a stock is the price today minus the price yesterday. Then take all this divided by the price yesterday. For example, for August 8^th the HPR is the adjusted closing price for August 8^th minus the adjusted closing price for August 7^th (which equals the open price on August 8^th) all divided by the adjusted closing price on August 7^th. You can either do this for each stock or if you set the spreadsheet up right you can do it simultaneously for all stocks (see example).

To get a sense of how each stock did we will find the average (the mean) HPR over the month. To do this use the AVERAGE function in excel. You implement this by selecting a cell and typing: =AVERAGE(

Question

FINANCE 310

INVESTMENTS

FALL 2018

INVESTMENTS PROJECT

PART I

The Point of the Project

You are a portfolio manager, and you are trying to put together a portfolio that is designed to beat the market (represented here by the S&P 500 index). To do this you will first pick ten stocks, and then you will figure out how much of each of them to buy, using monthly data from the last five years to make your decisions. You have 100 million dollars to play with.

You will decide if you have beaten the S&P 500 by looking at the performance of your portfolio over the period August 8^thNovember 8^th. To do this you will compare the risk-adjusted returns of your portfolio with the risk-adjusted return of the S&P. The project has three parts.

Project Part I

You need to answer the following questions:

(1 point) Pick ten stocks. The stocks must all be part of the S&P 500 index. Make sure the stocks have at least five years of pricing data.

(1.5 points) How did your ten stocks perform in the last month?

(2 points) How did the market do? Mention at least two events that may explain why the market return makes sense. Did any of your stocks have higher returns than the market index?

(2 points) For two of your stocks find at least one news story that may explain why these stocks had higher or lower returns than the market index.

(2 points) Assume you had a working crystal ball (that gives you a perfect forecast of the future) on August 8^th. How would you have invested over the past month? Assume you can only pick one stock. Further assume that you set up the investment on August 8^th and do not make any other transactions (i.e., buying, selling or shorting) until September 7^th. The margin is 50% for both short selling and buying on margin. Calculate the return of this investment.

(1.5 points) Repeat Q5, but assume that there are no margin requirements? How much would you pay for the crystal ball?

Make a title page that includes your name and section number and anything else you deem helpful. You should hand in a hard-copy at the beginning of class. Include answers to all the questions and any supporting material you think is helpful. Make it presentable to a client, or a prospective employer. It should be user friendly, concise, well-written, neat and convincing. Print only the relevant parts of the spreadsheet. The answers should be brief, but convincing. Make it easy to find your answers. Include supporting material in the appendix. Practice good printing etiquette. Write well. The assignment should be maximum three pages (including any appendix, but excluding the title page).

DETAILED INSTRUCTIONS

Try to follow these instructions at closely as possible.

Pick ten stocks. The stocks must all be part of the S&P 500 index. Make sure the stocks have at least five years of pricing data.

Here are a couple places to look for a list of the 500 companies currently in the S&P 500:

https://en.wikipedia.org/wiki/List_of_S%26P_500_companies

http://money.cnn.com/data/markets/sandp/

The company must have 5 years of pricing data. An easy way to check this is to find the companys stock price chart in finance.yahoo.com or finance.google.com. Make sure that when you click on 5y (5 years) there are prices available starting in early 2012.

How did your ten stocks perform in the past month?

Last month is from the start of trading August 8th to the end of trading on September 7th.

You must first download historical data for each stock. Go to finance.yahoo.com and type in the stocks ticker symbol (or name).

In the left column click on Historical Prices.

In Set Date Range select the relevant range (i.e., the last month as specified in (a)). Click Get Prices.

At the bottom of the page select Download to Spreadsheet. Excel will now open with the date you selected. Repeat parts b-e for all ten stocks.

In total you should now have ten spreadsheets with historical prices for the past month. It may be helpful to consolidate these ten spreadsheets into one sheet by copying the Adjusted Close columns for each stock into a new spreadsheet.

You are interested in the Adjusted Close column. Yahoo! downloads price data that have been adjusted for dividends and stock splits. So you wont have to worry about either of these events.

You now have prices for each, but you are interested in returns. So we have to calculate daily holding period returns (HPR)!

To do this you want to use the formula for HPR from the slides. Note that we can disregard dividends (see part g.). The daily HPR for a stock is the price today minus the price yesterday. Then take all this divided by the price yesterday. For example, for August 8^th the HPR is the adjusted closing price for August 8^th minus the adjusted closing price for August 7^th (which equals the open price on August 8^th) all divided by the adjusted closing price on August 7^th. You can either do this for each stock or if you set the spreadsheet up right you can do it simultaneously for all stocks (see example).

To get a sense of how each stock did we will find the average (the mean) HPR over the month. To do this use the AVERAGE function in excel. You implement this by selecting a cell and typing: =AVERAGE(

Accepted Answer

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Question

FINANCE 310 INVESTMENTS FALL 2018 INVESTMENTS PROJECT PART I The Point of the Project You are a portfolio manager, and you are trying to put