Investment Final 2021.docx Protected view) - Microsoft Word (Product -ctivation Failed CASE 1: All the questions in this case are related, you may use data from one question within the case, to solve another question. The following table shows prices for stocks x,y and z from 2009 to 2018 31-12-09 31-12-10 31-12-11 31-12-12 31-12-13 31-12-14 31-12-15 31-12-16 31-12-17 31-12-18 I 3012.01 3023.43 3055.10 3050.80 3034.96 3033.30 3080.97 3114.09 3120.14 3124.61 Z 4270.69 3376.18 4358.03 3344.67 4427.33336 33 4356.87 3340.86 4359.35 3296.05 4370.92 3290.71 4450.14 3356.64 4479.13 3210.67 4498.17 3253.85 4490.64 3309.21 The following table shows the yearly return for stocks x,y and z and the expected return and risk for the following year. Z 31-12-10 31-12-11 31-12-12 31-12-13 31-12-14 31-12-15 31-12-16 31-12-17 31-12-18 Expected Return I Returns: 0.003791 0.020451 0.010475 0.015895 -0.00141 -0.01591 -0.005190.000569 -0.00055 0.002654 0.015716 0.018124 0.01075 0.006514 0.001943 0.004251 0.001433 -0.00167 -0.00933 -0.00249 0.001358 -0.01341 -0.00162 0.020035 -0.04349 0.013449 0.017014 0.004107 0.005653 QUESTION 1 (8 marks): la) Explain how the yearly return for each stock is calculated. 1b) Explain how the expected returns and standard deviations for stocks x andy are calculated. 1e) Calculate the expected return and standard deviation for stocks y and z. X The following table shows the covariances between stocks x, y and z Covariances 0.0000 0.0000455 -0.0000029 Y 0.0000455 0.0000 0.0000061 Z -0.0000029 -0.0000061 0.000 QUESTION 2 (4 marks): Use the information in the covariances table and any other information you may need. 2a) If you had to choose only two stocks to invest in, which two would you LEAST LIKELY select together and why? 2b) If you had to choose only two stocks to invest in, which two would you MOST LIKELY select together and why? The following table shows the expected return for each of the 3 stocks. It also shows the set risk level of 1.1% ER 0.004078 0.00558 -0.00223 Weights 0 0.4507 0.5492 1 ??? Z ERP QUESTION 3 (6 marks): 3a) Calculate the expected return of the portfolio (ERP) 3b) If this portfolio is optimal, then what can you conclude about its ERP? 3c) How is the ERP at a specific level of risk achieved? in other words, what allows ERP at a specific level of risk to differ from the expected portfolio return at a different level of risk? QUESTION 4 (6 marks): The following graph shows the efficient frontier for the portfolio containing x, y and z securities EFFICIENT FRONTIER 0.00525 0.00475 0.00425 ERP * 0.00375 000325 000275 0.00G 0.0055 0.007 0.0075 0.000 0.000 op 4a) Which combination of the portfolio is most efficient or the closest to optimal, A. B, C or D and why? Additionally, explain the difference between each of these B, C or D and why? Additionally, explain the difference between each of these portfolios. 4b) If the star represents portfolio E, is it better than B? Explain why or why not. 4c) If the triangle represents portfolio F, is it better than C? D? Explain why or why not CASE 2 (6 marks): contract 1) As an investor looking to buy 100 Dell shares in June at $20 each through an option a) What type of expectations does the investor have? What type of investor is he? b) As a hedger should he enter into a long call contract or a Short Put contract and why? Explain what it means and why you chose that c) Explain the profit or loss from either contract you select at different market prices in June CASE 3 (12 marks): Select any Egyptian stock of your choice. Find out the value of the last dividend issued. Ascertain the growth rate of this corporation's dividends, using information from the corporation's financial statements, and assuming that the dividends grow at a constant rate. Assume your own required rate of return for the selected stock, given that the risk free rate of retum in Egypt is currently 13% Calculate the present value for this stock, using the constant growth rate ascertained earlier Find out the market price of this stock and compare it to the present value you have calculated. State whether you should buy this stock or not and why . Investment Final 2021.docx Protected view) - Microsoft Word (Product -ctivation Failed CASE 1: All the questions in this case are related, you may use data from one question within the case, to solve another question. The following table shows prices for stocks x,y and z from 2009 to 2018 31-12-09 31-12-10 31-12-11 31-12-12 31-12-13 31-12-14 31-12-15 31-12-16 31-12-17 31-12-18 I 3012.01 3023.43 3055.10 3050.80 3034.96 3033.30 3080.97 3114.09 3120.14 3124.61 Z 4270.69 3376.18 4358.03 3344.67 4427.33336 33 4356.87 3340.86 4359.35 3296.05 4370.92 3290.71 4450.14 3356.64 4479.13 3210.67 4498.17 3253.85 4490.64 3309.21 The following table shows the yearly return for stocks x,y and z and the expected return and risk for the following year. Z 31-12-10 31-12-11 31-12-12 31-12-13 31-12-14 31-12-15 31-12-16 31-12-17 31-12-18 Expected Return I Returns: 0.003791 0.020451 0.010475 0.015895 -0.00141 -0.01591 -0.005190.000569 -0.00055 0.002654 0.015716 0.018124 0.01075 0.006514 0.001943 0.004251 0.001433 -0.00167 -0.00933 -0.00249 0.001358 -0.01341 -0.00162 0.020035 -0.04349 0.013449 0.017014 0.004107 0.005653 QUESTION 1 (8 marks): la) Explain how the yearly return for each stock is calculated. 1b) Explain how the expected returns and standard deviations for stocks x andy are calculated. 1e) Calculate the expected return and standard deviation for stocks y and z. X The following table shows the covariances between stocks x, y and z Covariances 0.0000 0.0000455 -0.0000029 Y 0.0000455 0.0000 0.0000061 Z -0.0000029 -0.0000061 0.000 QUESTION 2 (4 marks): Use the information in the covariances table and any other information you may need. 2a) If you had to choose only two stocks to invest in, which two would you LEAST LIKELY select together and why? 2b) If you had to choose only two stocks to invest in, which two would you MOST LIKELY select together and why? The following table shows the expected return for each of the 3 stocks. It also shows the set risk level of 1.1% ER 0.004078 0.00558 -0.00223 Weights 0 0.4507 0.5492 1 ??? Z ERP QUESTION 3 (6 marks): 3a) Calculate the expected return of the portfolio (ERP) 3b) If this portfolio is optimal, then what can you conclude about its ERP? 3c) How is the ERP at a specific level of risk achieved? in other words, what allows ERP at a specific level of risk to differ from the expected portfolio return at a different level of risk? QUESTION 4 (6 marks): The following graph shows the efficient frontier for the portfolio containing x, y and z securities EFFICIENT FRONTIER 0.00525 0.00475 0.00425 ERP * 0.00375 000325 000275 0.00G 0.0055 0.007 0.0075 0.000 0.000 op 4a) Which combination of the portfolio is most efficient or the closest to optimal, A. B, C or D and why? Additionally, explain the difference between each of these B, C or D and why? Additionally, explain the difference between each of these portfolios. 4b) If the star represents portfolio E, is it better than B? Explain why or why not. 4c) If the triangle represents portfolio F, is it better than C? D? Explain why or why not CASE 2 (6 marks): contract 1) As an investor looking to buy 100 Dell shares in June at $20 each through an option a) What type of expectations does the investor have? What type of investor is he? b) As a hedger should he enter into a long call contract or a Short Put contract and why? Explain what it means and why you chose that c) Explain the profit or loss from either contract you select at different market prices in June CASE 3 (12 marks): Select any Egyptian stock of your choice. Find out the value of the last dividend issued. Ascertain the growth rate of this corporation's dividends, using information from the corporation's financial statements, and assuming that the dividends grow at a constant rate. Assume your own required rate of return for the selected stock, given that the risk free rate of retum in Egypt is currently 13% Calculate the present value for this stock, using the constant growth rate ascertained earlier Find out the market price of this stock and compare it to the present value you have calculated. State whether you should buy this stock or not and why