Hi,

Please help to calculate without workings to get the answers for question 3 only.

Question 3

Analyse the three stocks and the S&P 500 index by answering the following:

(a) Compute the time -weighted return of all the stocks and the S&P 500.

(b) Calculate the standard deviation of the returns of all the stocks and the S&P 500.

Given the covariance matrix below and the standard deviations you calculated in question 3(b), calculate the beta of Apple, Amazon and Disney with respect to the S&P 500 index.

(d) Discuss the risk and potential return of Apple.

(e) Discuss the impact of including Apple in Kyle?s portfolio.

(f) Discuss the impact of including Amazon in Kyle?s portfolio

FIN353 Examination - January Semester 2016 Portfolio Management Tuesday, 24 May 2016 10:00 am - 12:00 pm ____________________________________________________________________________________ Time allowed: 2 hours ____________________________________________________________________________________ INSTRUCTIONS TO STUDENTS: 1. This examination contains FIVE (5) questions and comprises FIVE (5) printed pages (including cover page). 2. You must answer ALL questions. 3. This is an open book examination. 4. All answers must be written in the answer book. At the end of the examination Please ensure that you have written your examination number on each answer book used. Failure to do so will mean that your work cannot be identified. If you have used more than one answer book, please tie them together with the string provided. THE UNIVERSITY RESERVES THE RIGHT NOT TO MARK YOUR SCRIPT IF YOU FAIL TO FOLLOW THESE INSTRUCTIONS. FIN353 Copyright 2016 SIM University Examination - January Semester 2016 Page 1 of 5 You must answer ALL the questions. (Total 100 marks) Winter is coming. As an avid fan of the Game of Thrones TV series, Kyle could not help but smile sadly at how fiction had become reality for him. His family business, Global Plastics Limited, used to be the second biggest company in the world specialising in plastic moulding and manufacturing. Some of the world's greatest and best known brands, like Apple, Toyota and Boeing Co. were his clients. However, in the last decade, relentless cost pressures and loss of market share to competitors from China made his company unprofitable. \"Although it pained me greatly, I sold Global Plastics and decided to retire\" Kyle tells you. You are Kyle's best friend. As a veteran portfolio manager, Kyle has asked you to review his financial situation and to manage his money. Question 1 After a few meetings with Kyle, you have created an Investment Policy Statement (IPS). Kyle's required rate of return is 7% per annum and he only wants to invest in Singapore and US equities. The risk-free rate of return is 1.5% per annum. You extract the following 20 years annualized information from Reuters Eikon: Annualized Average Return Straits Times Index Singapore Government Securities S&P 500 Index Barclays US Aggregate Bond Index MSCI World Index Barclays MSCI Fixed Income Index 6.7% 2.1% 7.2% 2.3% 6.2% 2.6% Annualized Standard Deviation 19.6% 3.5% 23.4% 3.9% 18.3% 4.1% Develop a strategic asset allocation for Kyle by answering the following: (a) Calculate the proposed percentage allocation for the above asset classes. (5 marks) (b) Discuss how adding other types of asset classes may be beneficial to Kyle's portfolio. (6 marks) Question 2 Kyle has been an active investor and has invested in quite a substantial portfolio already, the majority of which is in US equities. The sector weights of his current portfolio and the S&P 500 Index are: FIN353 Copyright 2016 SIM University Examination - January Semester 2016 Page 2 of 5 Sector Consumer staples Healthcare Utilities Telecommunication Services Consumer Discretionary Materials Energy Industrials Financials Information Technology Total Portfolio Weight 18.4% 18.8% 7.2% 4.8% 10.8% 2.2% 9.4% 7.8% 9.5% 11.1% 100.0% S&P 500 Weight 10.6% 12.2% 3.4% 2.9% 11.7% 3.6% 11.2% 10.3% 15.8% 18.3% 100.0% Discuss Kyle's current equities portfolio by answering the following: (a) Discuss whether Kyle's current portfolio appears to be defensively or offensively positioned. (6 marks) (b) Discuss whether you expect the beta of Kyle's current portfolio to be more than, less than or equal to 1. (4 marks) (c) Discuss how you expect Kyle's current portfolio to perform if there is a major bull run in the stock market. (4 marks) Question 3 You are considering adding three more stocks to Kyle's portfolio. They are Google, Amazon and Disney. As part of your analysis, you have collected the prices for these stocks as well as the S&P 500: Year 2011 2012 2013 2014 2015 Apple $57.86 $76.02 $80.16 $110.38 $105.26 Amazon $173.10 $250.87 $398.79 $310.35 $675.89 Disney $37.50 $49.79 $76.40 $94.19 $105.08 S&P 500 index 1,257.60 1,426.19 1,848.36 2,058.90 2,043.94 Analyse the three stocks and the S&P 500 index by answering the following: (a) Compute the time -weighted return of all the stocks and the S&P 500. (6 marks) (b) Calculate the standard deviation of the returns of all the stocks and the S&P 500. (12 marks) FIN353 Copyright 2016 SIM University Examination - January Semester 2016 Page 3 of 5 (c) Given the covariance matrix below and the standard deviations you calculated in question 3(b), calculate the beta of Apple, Amazon and Disney with respect to the S&P 500 index. Correlation Apple Amazon Amazon -10.5% Disney 0.1% -1.9% S&P 500 index 0.3% -2.2% Disney 2.2% (3 marks) (d) Discuss the risk and potential return of Apple. (6 marks) (e) Discuss the impact of including Apple in Kyle's portfolio. (6 marks) (f) Discuss the impact of including Amazon in Kyle's portfolio. (6 marks) Question 4 Recent data show that China's manufacturing sector has contracted for the sixth month while the Shanghai stock index continues to plunge. China's 2016 GDP growth is estimated to be 6.5% compared to an average of 10% in the last 10 years. Adding to the market turmoil is plunging oil prices. Crude oil prices are now below USD 30 per barrel and may continue to drop once Iran starts selling its oil on the international market. On the positive side, the US Federal Reserve Bank (the Fed) decided not to increase interest rates and to keep them low given the market uncertainty. As you the read the news, you start to worry as Kyle has some banking and oil-related stocks in his portfolio. \"Perhaps it's time to rebalance Kyle's portfolio\" you think to yourself. Evaluate how the recent market development affects Kyle's portfolio by answering the following: (a) Discuss how banking stocks may be impacted by China's slowdown. (6 marks) (b) Discuss how oil-related stocks may be impacted by the plunge in oil prices. (6 marks) (c) Discuss how the Fed's decision may impact the stock market in general. (6 marks) FIN353 Copyright 2016 SIM University Examination - January Semester 2016 Page 4 of 5 Question 5 After a year, you compile the portfolio attribution report for Kyle's portfolio. CONTRIBUTION (BASIS POINTS) 31 1. ASSET ALLOCATION 2. SELECTION A. SINGAPORE EQUITIES I. SECTOR ALLOCATION II. SECURITIES SELECTION SINGAPORE SUB-TOTAL B. US EQUITIES I. SECTOR ALLOCATION II. SECURITIES SELECTION US SUB-TOTAL 129 18 147 x 40% (portfolio weight) = 59 -20 256 236 x 60% (portfolio weight) = 142 TOTAL EXCESS RETURN OF PORTFOLIO 231 Analyse the portfolio returns by: (a) Calculating the contribution (in basis points) of both the sector allocation of Singapore equities and the securities selection of US equities. (6 marks) (b) Discussing the results of the portfolio attribution report. (12 marks) ----- END OF PAPER ----- FIN353 Copyright 2016 SIM University Examination - January Semester 2016 Page 5 of 5