Please answer questions 1-6
Synopsis: Alex Sharpe is pondering her investment strategy for her children's educational saving. Currently, this money was invested in the vanguard soo Index Fund, a no-load mutual fund constructed the performance of the S&P soo. In order to achieve higher returns, Sharpe had been considering changing her passive investment strategy to one that was more active. Assignment Provide a quick rundown of Alex Sharpe's situation. Discuss Ms. Sharpe's strategies and goals, how can she "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). 1. Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? 2. Suppose Sharpe's position has been 99% of equity funds invested in the s&P 500 and either 1% in Reynolds or 1% in Hasbro. Estimate the resulting portfolio position. How does each stock affect the variability of the equity investment? How does this relate to your answer in question 1 above? 3. Compute the "beta" for each stock. What does beta measure? How does this relate to your previous answers? 4. How might the expected return of each stock relate to its riskiness? 5. What is the required rate of return for each stock (CAPM)? Explain the number and put it into context? 6. In what stock(s) (if any) should Sharpe Invest? Make a recommendation of what you would do you were Alex Sharpe. Would you try something different? Date RF (in Jan-02 1.65 Feb-02 1.73 Mar-02 1.79 Apr 02 1.72 May-02 1.73 Jun-02 1.70 Jul 02 1.68 Aug-02 1.62 Sep-02 1.63 Oct-02 Nov-02 1.23 Dec-02 1.19 Synopsis: Alex Sharpe is pondering her investment strategy for her children's educational saving. Currently, this money was invested in the vanguard soo Index Fund, a no-load mutual fund constructed the performance of the S&P soo. In order to achieve higher returns, Sharpe had been considering changing her passive investment strategy to one that was more active. Assignment Provide a quick rundown of Alex Sharpe's situation. Discuss Ms. Sharpe's strategies and goals, how can she "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). 1. Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? 2. Suppose Sharpe's position has been 99% of equity funds invested in the s&P 500 and either 1% in Reynolds or 1% in Hasbro. Estimate the resulting portfolio position. How does each stock affect the variability of the equity investment? How does this relate to your answer in question 1 above? 3. Compute the "beta" for each stock. What does beta measure? How does this relate to your previous answers? 4. How might the expected return of each stock relate to its riskiness? 5. What is the required rate of return for each stock (CAPM)? Explain the number and put it into context? 6. In what stock(s) (if any) should Sharpe Invest? Make a recommendation of what you would do you were Alex Sharpe. Would you try something different? Date RF (in Jan-02 1.65 Feb-02 1.73 Mar-02 1.79 Apr 02 1.72 May-02 1.73 Jun-02 1.70 Jul 02 1.68 Aug-02 1.62 Sep-02 1.63 Oct-02 Nov-02 1.23 Dec-02 1.19
