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 th November 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( ) Then click ENTER 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 The market is represented by the S P 500 index The ticker symbol is SPX ( GSPC works too) To find the daily HPR on the S P 500 index just treat it just any other stock and follow the instructions from Q2 To find two events go to finance google com or finance yahoo com Why did the market go up or down See can use the technique explained below in Q4 or simply look for stories that attempt to explain the S P 500s recent performance 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 Go to finance google com and look up each of your stocks Click on 1m to see the last month of trading (if this doesnt give you the time you are interested in use the scroll bar at the bottom to select the period you are interested in (i e , the last month as specified in 1(a)) Click on the tabs with capital letters Each letters corresponds to a news event in the right column See if you can find an important news announcement associated with a significant movement in price We are only looking at one month so there may not have been any significant news for all the companies If you cant find anything, report the most important news evident and state that it was not associated with any significant stock price reaction Another technique is to search for stories in news google com 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 8 th The margin is 50 for both short selling and buying on margin Calculate the return of this investment To calculate the return use the example we did in class Show your work Repeat Q5, but assume that there are no margin requirements You can now effectively set the margin at 0 if this is optimal That is you do not have to contribute from your own pocket

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 th November 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( )  Then click ENTER  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  The market is represented by the S P 500 index  The ticker symbol is  SPX ( GSPC works too)  To find the daily HPR on the S P 500 index just treat it just any other stock and follow the instructions from Q2  To find two events go to finance google com or finance yahoo com  Why did the market go up or down  See can use the technique explained below in Q4 or simply look for stories that attempt to explain the S P 500s recent performance  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  Go to finance google com and look up each of your stocks  Click on 1m to see the last month of trading (if this doesnt give you the time you are interested in use the scroll bar at the bottom to select the period you are interested in (i e , the last month as specified in 1(a)) Click on the tabs with capital letters  Each letters corresponds to a news event in the right column  See if you can find an important news announcement associated with a significant movement in price  We are only looking at one month so there may not have been any significant news for all the companies  If you cant find anything, report the most important news evident and state that it was not associated with any significant stock price reaction  Another technique is to search for stories in news google com  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 8 th   The margin is 50  for both short selling and buying on margin  Calculate the return of this investment  To calculate the return use the example we did in class  Show your work  Repeat Q5, but assume that there are no margin requirements  You can now effectively set the margin at 0  if this is optimal  That is you do not have to contribute from your own pocket

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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