Hello, I need some help in doing my Finance project about A FINANCIAL MARKET SIMULATION STUDY See below for more details and let me know if someone can assist me with this project. THE PROJECTa financial information. 2. To select portfolios of securities. 3. To track the performance of the selected portfolios and the stock market over a period of time. 4. To observe the effects of diversification. IMPLEMENTATION This project is an individual effort. It is required that you use EXCEL to organize your security trades in a readable and convenient format. If you choose not to use a worksheet you are still required to present your numerical findings, tables and graphs in a typed and readable format. Handwritten tables, graphs and appendices will NOT be graded. Initial funding for this project is a total of $1,000,000. You will use these funds to set up three separate portfolios. The first portfolio consists of a mutual fund to be selected from the WSJ. Your initial investment in this mutual fund must be at least $50,000. Your selected fund may either be a closed-end fund (these companies generally refuse to accept new funds during their lives) or the 'traditional' open-end mutual fund (these companies are always ready to accept money from new investors). Also, your fund may be a load fund or a no-load fund. Finally, the fund you select may not be an index fund, in other words, your selected fund may not be one that mimics a particular market index such as the S&P500. The second portfolio is a one-asset portfolio consisting of a `star' security, one that you believe will outperform all others during this semester. There are no restrictions with respect to how much you may invest in the 'star' security. Both your selected mutual fund and the 'star' portfolio involve a 'buy and hold' strategy, that is, you are not allowed to alter them once they have been purchased. After the first two portfolios have been established, the remaining funds will be used to construct the third portfolio. This last (third) portfolio must contain at least seven securities. Of these, six must be traded on the NYSE and/or AMEX stock exchanges or the NASDAQ (OTC) market and the remaining one(s) must be traded on an overseas exchange.3 The securities in the third portfolio consist of stocks, bonds and money market securities (e.g., T-bills, short-term CDs, Commercial Paper (CP), Bankers Acceptances (BA), short-term Eurodollar Deposits, etc.). Initially, you must invest at least $50,000 in corporate bonds and $50,000 in Treasury securities (bonds, notes or bills). The purchase/sale of options or futures is not required but you may include these derivatives in your portfolio if you wish to do so. The third portfolio involves active management in that you are expected to rebalance it periodically to take advantage of market gyrations. The purchase of a mutual fund will allow you to compare the volatility and performance of your own portfolio (third portfolio) to a professionally managed selection of securities (first portfolio). In addition to tracking the performances of your three portfolios you are asked to track the performance of the market as measured by one of the major stock market indexes (e.g., S&P500, DJIA30, NYSE composite index, NASDAQ composite index, Russell 3000, Wilshire 5000, etc.). 3 Because trading overseas involves foreign currencies, you must pay special attention to developments in foreign exchange markets. More specifically, you need to know the dollar's exchange rate in order to calculate the domestic (US) value of your overseas investment(s). 10 ASSUMPTIONS 1. The price of each security is determined at the close of each trading day as reported in the WSJ and other sources. 2. Fractional shares may be purchased. 3. Taxes do not need to be applied quantitatively. However, some discussion in your paper as to how the inclusion of taxes would have changed your results is required. 4. Transactions costs do exist as follows: Listed Stocks 2 Cents per share (Overriding Minimum Commission = $34.00 per Executed Order)1, 2 OTC Stocks 1  Cents per share (Overriding Minimum Commission = $34.00 per Executed Order) Stocks under $1.00 per Share $25.00 plus 2.75% of Principal Amount Listed Corporate Bonds $4.00 per bond (Overriding Minimum Commission = $34.00 per Executed Order) U.S. Treasury Bills, Notes & Bonds $1.50 per Bill, Note or Bond (Overriding Minimum Commission = $34.00 per Executed Order) Options Less Than $1.00 per Contract $1.75 per Contract (Overriding Minimum Commission = $27.5) Options $1.00 - $37/8 per Contract $3.00 per Contract (Overriding Minimum Commission = $27.5) Options $4.00 and Up Per Contract $3.00 per Contract (Overriding Minimum Commission = $30.00) Futures $50.00 per contract Notes: 1 Commissions are quoted on a "per order" basis. 2 An "Order" is defined as the combination of all transactions executed for the same security on the same side for the same account number, at the same price on the same day. REQUIREMENTS 1. The commissions stated above are not `round trip' charges. You must charge yourself commission for each and every buy and sell transaction that you make. 2. At least two margin purchases and two short sales are required. The borrowing rate is 2% above the broker's call rate on the day of your transaction (reported in the WSJ and other online sources under the name call money). Interest on borrowed funds must be determined and paid weekly. Use the following parameters in making your trades: Initial Margin Margin Maintenance Individual Stocks ASSUMPTIONS 1. The price of each security is determined at the close of each trading day as reported in the WSJ and other sources. 2. Fractional shares may be purchased. 3. Taxes do not need to be applied quantitatively. However, some discussion in your paper as to how the inclusion of taxes would have changed your results is required. 4. Transactions costs do exist as follows: Listed Stocks 2 Cents per share (Overriding Minimum Commission = $34.00 per Executed Order)1, 2 OTC Stocks 1  Cents per share (Overriding Minimum Commission = $34.00 per Executed Order) Stocks under $1.00 per Share $25.00 plus 2.75% of Principal Amount Listed Corporate Bonds $4.00 per bond (Overriding Minimum Commission = $34.00 per Executed Order) U.S. Treasury Bills, Notes & Bonds $1.50 per Bill, Note or Bond (Overriding Minimum Commission = $34.00 per Executed Order) Options Less Than $1.00 per Contract $1.75 per Contract (Overriding Minimum Commission = $27.5) Options $1.00 - $37/8 per Contract $3.00 per Contract (Overriding Minimum Commission = $27.5) Options $4.00 and Up Per Contract $3.00 per Contract (Overriding Minimum Commission = $30.00) Futures $50.00 per contract Notes: 1 Commissions are quoted on a "per order" basis. 2 An "Order" is defined as the combination of all transactions executed for the same security on the same side for the same account number, at the same price on the same day. REQUIREMENTS 1. The commissions stated above are not `round trip' charges. You must charge yourself commission for each and every buy and sell transaction that you make. 2. At least two margin purchases and two short sales are required. The borrowing rate is 2% above the broker's call rate on the day of your transaction (reported in the WSJ and other online sources under the name call money). Interest on borrowed funds must be determined and paid weekly. Use the following parameters in making your trades: Initial Margin Margin Maintenance Individual Stocks 65% 55% 11 Individual Bonds 35% 30% Individual T-Bills 15% 15% Diversified Portfolio4 50% 40% Non-diversified Portfolio 60% 45% 3. Options may not be bought on margin. When selling a naked option, the writer must deposit a margin =0.20(market value of the underlying security) + the option premium - the amount by which the option is out-of-the money. Futures contracts may be traded by depositing a margin (or surety bond) with the broker. Assume that it is equal to 5% of the underlying asset's spot value. Remember that all futures contracts are marked-to-market (daily gains and/or losses are realized in cash). However, for our purpose, marking-tomarket takes place once per week. Margin must be maintained at 75% of the initial level. 4. Securities in your portfolio may be sold at any time and the proceeds reinvested or held in cash. Dividends paid on securities held on the day-of-record may be posted. Coupons on bonds held on the coupon payment date may be posted, otherwise only post the accrued interest portion of the payment. 5. You must be fully invested no later than Tuesday 9/15/2020. Your last transaction must be made no earlier than Tuesday 11/03/2020. You must also update your account once per week for a total of 8 weekly updates. More specifically, you must calculate and record the values of your various portfolios on the following dates: 9/15, 9/22, 9/29, 10/6, 10//13, 10/20, 10/27, and 11/3. 6. Interest on any cash balance of $5,000.00 or less must be posted weekly. Try to minimize the amount of cash you hold (i.e., stay fully invested) because only $5,000 of unused funds will earn an annual interest of 1.25% compounded daily. Any unused funds beyond $5,000 earn no interest. 7. You must obtain the dividend payment dates, dates of record and coupon payment dates of all stocks and bonds to accurately calculate weekly returns. You may obtain such information from Value-Line Services, Standard & Poor's Stock Reports, Moody's Manuals, or use online sources. Information on mutual funds can be found in Wiesenberger Investment Company Service Book and Morningstar. 8. Returns must be calculated weekly for each of the three portfolios and the market index. You are expected to use these weekly returns to calculate an overall geometric return after liquidation. Risk must be evaluated for each of the portfolios after liquidation by calculating betas, standard deviations, and the coefficients of variation. 9. You must clip your actual trading prices from the WSJ or your chosen online source up to 11/03/2020 and include these in Appendix B of the final written report. 10. Your final report is due online (via Canvas) on Tuesday 11/10/2020. LATE REPORTS WILL NOT BE ACCEPTED. Reports submitted on time will be graded so as to allow students to receive their report grades by November 17 (the day of the final exam). 11. DO NOT wait until the last week (i.e. after liquidation) to begin the formal write up of your report. You can begin the formal write up much earlier thus avoiding timing problems toward the end. It is recommended that you type in your prices and returns every week to eliminate a huge typing job at the last minute. Also, PLEASE make a back up copy of all the work done on computer so that a last-minute lost file will not be a tragedy. 13. NEVER, NEVER LET CHARTS, GRAPHS OR APPENDICES TAKE THE PLACE OF YOUR NARRATIVE. INSTEAD USE THEM TO FACILITATE YOUR DISCUSSION AND ANALYSIS. 4 A diversified portfolio is defined as one in which no single asset represents more than 60% of its market value. 12 WRITTEN REPORT Your report will be graded according to your ability to include the following factors in your analysis. 1. The report must be typed, double-spaced and free from any grammatical and/or spelling errors. Format the report such that each section is clearly identified with a heading. Paragraphs are indented five spaces. The report must have a title page, a table of contents, a list of all references (be sure to document all WSJ articles properly), graphs/charts to facilitate the analysis, and all pages must be numbered. 2. The first section of your report should be an introduction and should give a brief overview of your results. 3. Section two of your report should contain your method of selecting securities. a. Comment briefly on each security in the portfolio. Such comments should include: (i) Stocks: why you purchased the stock; what is the stock's risk; and, the amount and timing of the dividend payment. (ii) Bonds: why you selected the bond; what is the bond's quality rating, what are the coupon rate and maturity date? (iii) Market Index: which market index did you choose and why? (iv) Derivative Securities: why you selected the options/futures contracts; why you chose a naked or covered position; what is the relevant expiration/delivery date and why was it selected? b. What consideration did you give to diversification? (Industry/Security). c. What other factors did you consider in selecting your portfolio? 4. Section three of your report should contain your estimate (based on WSJ reports) of the economic factors which have affected the environment and thus the value and selection of your portfolio. Relate the following factors to changes in your portfolio's value: trade balances, the Fed's monetary policy, inflationary expectations, the value of the dollar, taxes, fiscal policy, regulation, unemployment rates, changes in technology and congressional activity. NOTE: A BUY AND HOLD STRATEGY DOES NOT EXEMPT YOU FROM ADEQUATELY COVERING THIS SECTION OF YOUR REPORT!! 5. Section four of your report should contain your explanation of the strategies used and how your portfolio performed relative to your expectations. Relate your discussion to the risk/return measures obtained for your portfolio. Graphs/charts may be necessary to organize your discussion. 6. Section five should contain a comparison of the weekly performance of your portfolio relative to the selected mutual fund, relative to the `star' security and relative to the market as a whole. Remember: Performance is defined as the return and risk is defined as the standard deviation of returns. GraphGraphs/charts are recommended to support your narrative. Remember to include: (a) a discussion of how taxes will impact your results; (b) a discussion of the results of your margin trades, and (c) the impact of marking-to-market (if derivatives were included in your portfolio). 7. Section six should contain a brief summary of your report and an explanation of the major lessons you learned throughout this process. 8. The report should contain the following appendices: Appendix A: Calculations for returns, Standard Deviation, and Geometric Means. Appendix B: WSJ or online clips to confirm trading prices and dates. Appendix C: Margin purchases, sales and margin call prices. Appendix D: Investment account/Cash flow summary for each portfolio. Appendix E: Dividend payment dates, dates of record, Coupon payment dates, and expiration/delivery cycles. Appendix F: News Documentation. 13 HYPOTHETICAL TABLE OF CONTENTS Table of Tables/Graphs iii I. Introduction 1 II. Selection Methodology 2 A. Spot Portfolio 3 1. Asset Selection & Cash Flows 5 2. Risk 15 3. Security and Industry Diversification 20 B. Derivative Security Portfolio 22 1. Asset Selection 26 2. Risk 28 3. Security and Industry Diversification 30 C. Other Factors 32 1. Star Security 33 2. Market Index Selection 34 3. Money market Securities/Mutual Fund 36 III. Economic Factors 40 A. Impact on Operating Environment 41 B. Impact on Portfolio 44 IV. Investment Strategies 48 V. Performance Comparison 53 A. Risk and return Comparison 54 B. Impact of Short Sales 56 C. Margin Trades 59 D. Significant Results of Marking-To-Market 62 VI. Summary 63 References 64 14 Appendix