Question
Introduction Daniel is a part-time Starbucks barista and finance student. As a Starbucks employee, part of his wages was paid in form of RSUs (restricted
Introduction
Daniel is a part-time Starbucks barista and finance student. As a Starbucks employee, part of his wages was paid in form of RSUs (restricted stock unit)1. These RSUs, also known as Bean Stock, will be turned into shares after the employee has worked for 2 continuous years in Starbucks. The reason behind the Bean Stock program is to turn employees into partners so that employees can share in their financial success2. After the vesting period of 2 years, the employee can decide whether to keep the stock or sell the stocks. Daniel has kept his stock for the last 5 years.
As a finance student, he knows the importance of time value of money and investing early for retirement. In class he learned that the longer the money has time to accrue the more that investment will grow. He also knows that there are different investment vehicles that give different returns on investment. One of the first things he learned was the risk and return concept. To make high returns he must be willing to take some risk. He could put his money into a savings account or a money market, a very safe and liquid account, or he could take extra risk and put his investment in the stock market. Since he already has Starbucks stock, he decides that this is the logical move for him. However, he also learned that a rational risk investor will always invest in a diversified portfolio. He is thinking about investing in other companies to diversify his portfolio. By diversifying his portfolio, he can reduce risk that is inherent in investing in the stock market.
Portfolio Holdings
As an investment novice who also has a financial constraint, he decides to look at a number of options. Daniel believes in investing in what he knows. He owns a Chevy truck and is a Verizon customer. Furthermore, he recently became aware of XPO logistics and their importance in the online market space. Though he has financial constraints and wants to receive the most out of his diversification benefit, he also decides to invest in SPY. SPY is the ticker symbol for SPDR S&P 500 ETF Trust. The SPY is an ETF that follows the S&P 500 Index. The S&P 500 is a market-value index that holds 500 of the largest companies that are listed on the NYSE or Nasdaq exchange. ETFs are similar to mutual funds that can be traded in exchanges. Daniel believes since he has financial constraint, holding SPY is a good way to diversify. He decides to invest in GM, XPO, VZ, and SPY.
General Motors (GM) is an American auto manufacture company who employs over 180,000 people in 5 continents3. GM manufactures 8 different car brands, among them include Chevrolet, Buick, GMC and Cadillac. GM brands themselves as technological innovators. GM is one of the first to mass-produce an affordable electric car and develop a self-drive car. They are also making headways to produce a cleaner car. Recently, however, GM has been in the news for discontinuing several models (mainly sedans) and laying off over 14,000 employees4. This could however be more of a strategic move than a signal of weak performance.
XPO Logistics Inc (XPO) is a logistic company that assists their customers with their supply chain and transportation needs5. They help many companies with their online market space and makes sure that goods reach the attended customers. They have 1,529 locations in 32 countries and serve 50,000 customers. The continual growth of ecommerce means that XPOs service will remain relevant and necessary to those companies looking to enter the ecommerce space.
Verizon Communication (VZ) is one of the largest telecom service providers. In 2017, Fortune ranked them number 166. While Verizon is best known for their wireless products it also owns well known subsidies such as Yahoo and AOL and has recently created a new subsidiary called Oath a media platform provider7. Verizon also recently launched Verizon 5G Network, a faster internet, in selected cities8. They plan to extend coverage to the rest of the nation in 2019. They will be the first company to provide 5G services to the public.
Starbucks (SBUX) opened in 1971 in Seattle as a local coffee shop9. Since than it has grown to over 24,000 stores in 75 different countries. Starbucks has over 30 coffee blends using high-quality beans from Latin America, Africa, and Asia. Besides coffee, Starbucks also sells tea, fresh food, and other merchandise. Starbucks is known as one of the Worlds Most Valuable Brand according to Forbes as well as Best Employer.
He comes to you, an MBA student, to help quantify his risk and return. Daniel wants to know the risk profiles of the different companies. Furthermore, he wants to know if the newly constructed portfolio provides the necessary expected return to compensate for his risk.
Provide a quick rundown of Daniels situation. Discuss strategies and goals of how he can add value. Think about issues such as efficiency, risk-return, and how to add value. Include a recommendation of a portfolio make-up (weights, or even suggestions of other stocks).
Date | SPY | SBUX | GM | VZ | XPO | RF |
1/1/18 | 6.18% | -1.08% | 4.41% | 2.15% | 3.11% | 1.41% |
2/1/18 | -3.64% | 0.51% | -7.22% | -10.70% | 4.22% | 1.57% |
3/1/18 | -3.13% | 1.93% | -7.65% | 0.17% | 3.43% | 1.70% |
4/1/18 | 0.92% | -0.55% | 2.13% | 3.20% | -4.57% | 1.76% |
5/1/18 | 2.43% | -1.56% | 16.22% | -2.19% | 8.33% | 1.86% |
6/1/18 | 0.13% | -13.35% | -7.73% | 5.54% | -4.82% | 1.90% |
7/1/18 | 4.17% | 7.25% | -2.94% | 2.64% | -0.46% | 1.96% |
8/1/18 | 3.19% | 2.02% | -4.91% | 6.51% | 6.80% | 2.03% |
9/1/18 | 0.14% | 7.08% | -6.60% | -1.80% | 7.20% | 2.13% |
10/1/18 | -6.49% | 2.52% | 9.86% | 6.93% | -21.71% | 2.25% |
11/1/18 | 1.85% | 14.50% | 3.72% | 6.79% | -15.13% | 2.33% |
12/1/18 | -9.33% | -2.96% | -11.86% | -6.77% | -24.81% | 2.37% |
1/1/19 | 8.64% | 5.81% | 17.88% | -2.06% | 6.56% | 2.37% |
2/1/19 | 3.24% | 3.11% | 1.18% | 4.46% | -17.16% | 2.39% |
3/1/19 | 1.36% | 6.36% | -6.03% | 3.88% | 6.73% | 2.40% |
4/1/19 | 4.54% | 4.49% | 6.03% | -3.28% | 26.68% | 2.38% |
5/1/19 | -6.38% | -2.09% | -14.40% | -3.99% | -23.49% | 2.35% |
6/1/19 | 6.44% | 10.73% | 15.57% | 5.11% | 10.98% | 2.17% |
7/1/19 | 2.01% | 12.95% | 5.82% | -3.26% | 16.73% | 2.10% |
8/1/19 | -1.67% | 1.97% | -8.06% | 6.34% | 5.01% | 1.95% |
9/1/19 | 1.48% | -8.08% | 1.05% | 3.78% | 1.00% | 1.89% |
10/1/19 | 2.68% | -4.37% | 0.14% | 0.18% | 6.75% | 1.65% |
11/1/19 | 3.62% | 1.03% | -3.12% | 0.66% | 8.23% | 1.54% |
12/1/19 | 2.40% | 3.43% | 1.67% | 1.93% | -3.62% | 1.54% |
1/1/20 | 0.45% | -3.51% | -7.79% | -3.19% | 11.57% | 1.52% |
2/1/20 | -7.92% | -7.54% | -8.66% | -7.93% | -16.81% | 1.52% |
3/1/20 | -13.00% | -15.79% | -31.87% | -0.79% | -34.09% | 0.29% |
4/1/20 | 13.36% | 16.72% | 8.58% | 6.92% | 36.90% | 0.14% |
5/1/20 | 4.76% | 1.64% | 16.11% | 0.95% | 18.09% | 0.13% |
6/1/20 | 1.33% | -5.11% | -2.24% | -3.92% | -1.98% | 0.16% |
7/1/20 | 6.36% | 4.00% | -1.62% | 4.26% | -2.89% | 0.13% |
8/1/20 | 6.98% | 10.38% | 19.04% | 4.27% | 17.66% | 0.10% |
9/1/20 | -4.13% | 2.27% | -0.13% | 0.37% | -4.09% | 0.11% |
10/1/20 | -2.10% | 1.21% | 16.69% | -4.20% | 6.31% | 0.10% |
11/1/20 | 10.88% | 12.72% | 26.96% | 7.13% | 18.53% | 0.09% |
12/1/20 | 3.26% | 9.66% | -5.02% | -2.75% | 11.74% | 0.09% |
1/1/21 | -0.60% | -9.51% | 21.71% | -6.81% | -7.37% | 0.08% |
2/1/21 | 2.78% | 11.59% | 1.28% | 2.09% | 5.61% | 0.04% |
3/1/21 | 4.20% | 1.58% | 11.94% | 5.15% | 5.75% | 0.03% |
4/1/21 | 5.64% | 4.78% | -0.42% | -0.62% | 12.83% | 0.02% |
5/1/21 | 0.66% | -0.53% | 3.65% | -1.20% | 5.61% | 0.02% |
6/1/21 | 1.91% | -1.43% | -0.24% | -0.81% | -4.79% | 0.04% |
7/1/21 | 2.78% | 8.60% | -3.94% | -0.45% | -0.86% | 0.05% |
8/1/21 | 2.98% | -3.24% | -13.78% | -0.29% | 7.66% | 0.05% |
9/1/21 | -4.96% | -5.75% | 7.55% | -1.80% | -8.43% | 0.04% |
10/1/21 | 7.36% | -3.84% | 3.26% | -1.89% | 7.82% | 0.05% |
11/1/21 | -0.80% | 3.37% | 6.32% | -4.01% | -15.57% | 0.05% |
12/1/21 | 4.26% | 7.15% | 1.31% | 3.36% | 6.89% | 0.06% |
1/1/22 | -4.94% | -15.94% | -10.06% | 2.44% | -14.54% | 0.15% |
2/1/22 | -2.95% | -6.64% | -11.40% | 2.04% | 9.84% | 0.33% |
3/1/22 | 3.44% | -0.39% | -6.38% | -5.09% | 0.17% | 0.44% |
4/1/22 | -8.49% | -17.95% | -13.33% | -9.11% | -26.11% | 0.76% |
5/1/22 | 0.23% | 5.17% | 2.03% | 12.13% | -0.65% | 0.98% |
6/1/22 | -8.64% | -2.00% | -17.89% | -1.05% | -9.88% | 1.49% |
7/1/22 | 9.68% | 10.98% | 14.17% | -8.99% | 24.04% | 2.23% |
8/1/22 | -4.08% | -0.84% | 5.38% | -8.34% | -12.25% | 2.63% |
9/1/22 | -9.62% | 0.80% | -15.83% | -9.18% | -15.07% | 3.13% |
10/1/22 | 8.57% | 2.77% | 22.31% | -1.58% | 16.22% | 3.72% |
11/1/22 | 5.56% | 18.03% | 3.34% | 6.07% | 25.62% | 4.15% |
12/1/22 | -6.19% | -2.38% | -17.06% | 1.08% | -13.80% | 4.25% |
What is the required rate of return for each stock (CAPM)? What is the CAPM for the (equally weighed) portfolio? Explain the number and put it into context? (Use the average Risk-Free rate provided).
Please include step by step explanation and the excel formula
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