Please see attached file. This assignment for Investment Management or Finance 6310 course. Excel file with calculations would be best. Thank you very much.

FIN Problem Set #2 1. On January 3, 2005, you short sold 5,000 shares of Ebay, a pioneer in internet person-to-person trading, at the price of $114.11 per share. The initial margin requirement is 65% and the maintenance margin is 30%. Short sale proceeds yield 2% and the initial margin yields 3% (both rates are annual rates). (a) Determine your short sale proceeds and the initial margin requirement. (b) To what price must Ebay climb for you to receive a margin call? (c) A month later, on February 3, 2005, Ebay fell to $77.22. What was the actual margin in your account? (d) Suppose that you closed your account on February 3, 2005. What was the return on your investment? 2. To solve this question you need to use the Excel file 'djia.xls' available at the course elearning. This file provides the stocks in the Dow Jones Industrial Average (DJIA) and stock prices as of August 31, 2005 and September 1, 2005. Note that the corresponding divisor for the DJIA is 0.12560864. (a) Find the value of the DJIA for both dates. You may use the Excel function \"SUM.\" (b) Determine the weight of each stock in the DJIA on September 1, 2005. (c) Use the DJIA on August 31, 2005 computed in (a) as the initial level, find the equal weighted index level for September 1, 2005 3. At the beginning of 2005, you invested $1,000 in the Fidelity Low Price Stock Fund. Three months later (at the beginning of April), your investment was valued at $900. In the mid of 2005, your investment in the Fund was valued at $1,100. (a) What was your annualized return? (b) At the beginning of April, if you added $100 to the Fund, leaving, therefore, $1000 invested in the Fund. What was your total investment value in the mid of 2005? (c) What was your dollar weighted annualized return in (b)? (d) What was your time weighted annualized return in (b)? 4. GROWTH, Inc.'s next year earning is expected to be $6 per share. The company pays out 2/3 of its earning as dividend. Both dividends and earnings are expected to grow by 10% a year for the first 5 years, and grow by 4% a year indefinitely thereafter. STABLE, Inc. is like GROWTH in all respects except that its growth will stop after year 5. In year 6 and afterward, it will pay out all earnings as dividends. The discount rate (k) for both companies is 8%. (a) What are the values for each company? (b) What are the P/E ratios and PEG ratios for each company? Assuming the average growth rates for GROWTH and STABLE are 6% and 3.33%, respectively. (c) Which stock would you buy using the PEG rule? Now, suppose the stock prices computed in (a) are the actual price. However, if you have assumed that both companies' earnings will grow by 4% a year indefinitely in computing the fair values, which stock should you buy? 5. You are interested in buying three stocks A, B, and C. After doing research, you collected the following information in the three possible scenarios, Possible Scenario 1 Scenario 2 Scenario 3 Outcomes Prob = 30% Prob = 50% Prob = 20% RA 15% 3% 1% RB 9% 12% 14% RC 12% 8% 10% (a) (b) (c) (d) 6. Determine their expected return, E[R A], E[RB] and E[RC]. What are the standard deviation, A, B and C. Calculate the correlation AB, AC and BC Let p be a portfolio with weights wAp=.2, wBp=.3 and wCp=.5, and let q be a portfolio with weights wAq=.4, wBq=.3 and wCq=.3. Determine E[Rp], E[Rq], p, q, and compute the covariance pq and correlation pq between p and q. Stock A's expected return and standard deviation are E[R A] = 6% and A= 12%, while stock B's expected return and standard deviation are E[R B] = 10% and B= 20%. (a) Using Excel to compute the expected return and standard deviation of the return on a portfolio with weights wA=0, 0.1, 0.2, 0.3, 0.4, 0.5, 0.6, 0.7, 0.8, 0.9, and 1, for the following alternative values of correlation between A and B: AB=0.6 and AB= -0.4. For the two different correlation value, plot the expected returnstandard deviation pairs on a graph (with the standard deviations on the horizontal axis, and the expected returns on the vertical axis). (b) How would you construct a portfolio with expected return of 8% using fund A and fund B? What is the standard deviation of the portfolio? (Assume AB = 0.4) (c) How would you construct a portfolio with standard deviation of 15% using fund A and fund B? What is the expected return of the portfolio? (Assume AB = 0.4) (d) If you want to have the minimum variance for your portfolio, what will be your portfolio weights? In this case, what are the expected return and variance of your portfolio? (Assume AB = 0.4) COMPANY NAME PRIMARY 3M Co. New York Alcoa Inc. New York Altria Group Inc. New York American Express Co. New York American International New York Boeing Co. New York Caterpillar Inc. New York Citigroup Inc. New York Coca-Cola Co. New York E.I. DuPont de NemourNew York Exxon Mobil Corp. New York General Electric Co. New York General Motors Corp. New York Hewlett-Packard Co. New York Home Depot Inc. New York Honeywell InternationalNew York Intel Corp. NASDAQ International Business New York Johnson & Johnson New York JPMorgan Chase & CoNew York McDonald's Corp. New York Merck & Co. Inc. New York Microsoft Corp. NASDAQ Pfizer Inc. New York Procter & Gamble Co. New York SBC Communications INew York United Technologies C New York Verizon Communication New York Wal-Mart Stores Inc. New York Walt Disney Co. New York TICKER / MMM AA MO AXP AIG BA CAT C KO DD XOM GE GM HPQ HD HON INTC IBM JNJ JPM MCD MRK MSFT PFE PG SBC UTX VZ WMT DIS STYLE GRO VAL VAL GRO GRO N/A N/A VAL GRO VAL VAL VAL VAL VAL GRO VAL GRO GRO GRO VAL VAL VAL GRO VAL GRO VAL GRO VAL GRO N/A Price Price ICB SUBS WGHTG. % USD CLOS 31-Aug 1-Sep Diversified Industrials 71.15 70.86 71.15 Aluminum 26.79 27 26.79 Tobacco 70.7 69.95 70.7 Consumer Finance 55.24 55.32 55.24 Full Line Insurance 59.2 58.9 59.2 Aerospace 67.02 66.9 67.02 Commercial Vehicles 55.49 54.11 55.49 Banks 43.77 43.26 43.77 Soft Drinks 44 43.36 44 Commodity Chemicals 39.57 39.41 39.57 Integrated Oil & Gas 59.9 58.8 59.9 Diversified Industrials 33.61 33.2 33.61 Automobiles 34.19 34.45 34.19 Computer Hardware 27.76 27.02 27.76 Home Improvement Ret 40.32 40.1 40.32 Diversified Industrials 38.28 38.32 38.28 Semiconductors 25.72 25.63 25.72 Computer Services 80.62 80.35 80.62 Pharmaceuticals 63.39 63 63.39 Banks 33.89 33.59 33.89 Restaurants & Bars 32.45 32.56 32.45 Pharmaceuticals 28.23 28.01 28.23 Software 27.4 27.19 27.4 Pharmaceuticals 25.47 25.25 25.47 Nondurable Household 55.48 55.4 55.48 Fixed Line Telecommun 24.08 23.77 24.08 Aerospace 50 49.78 50 Fixed Line Telecommun 32.71 32.29 32.71 Broadline Retailers 44.96 45.29 44.96 Broadcasting & Entert 25.19 25.25 25.19 COMPANY NAME PRIMARY 3M Co. New York Alcoa Inc. New York Altria Group Inc. New York American Express Co. New York American International New York Boeing Co. New York Caterpillar Inc. New York Citigroup Inc. New York Coca-Cola Co. New York E.I. DuPont de NemourNew York Exxon Mobil Corp. New York General Electric Co. New York General Motors Corp. New York Hewlett-Packard Co. New York Home Depot Inc. New York Honeywell InternationalNew York Intel Corp. NASDAQ International Business New York Johnson & Johnson New York JPMorgan Chase & CoNew York McDonald's Corp. New York Merck & Co. Inc. New York Microsoft Corp. NASDAQ Pfizer Inc. New York Procter & Gamble Co. New York SBC Communications INew York United Technologies C New York Verizon Communication New York Wal-Mart Stores Inc. New York Walt Disney Co. New York TICKER / MMM AA MO AXP AIG BA CAT C KO DD XOM GE GM HPQ HD HON INTC IBM JNJ JPM MCD MRK MSFT PFE PG SBC UTX VZ WMT DIS STYLE GRO VAL VAL GRO GRO N/A N/A VAL GRO VAL VAL VAL VAL VAL GRO VAL GRO GRO GRO VAL VAL VAL GRO VAL GRO VAL GRO VAL GRO N/A Price Price ICB SUBS WGHTG. % USD CLOS 31-Aug 1-Sep Diversified Industrials 71.15 70.86 71.15 Aluminum 26.79 27 26.79 Tobacco 70.7 69.95 70.7 Consumer Finance 55.24 55.32 55.24 Full Line Insurance 59.2 58.9 59.2 Aerospace 67.02 66.9 67.02 Commercial Vehicles 55.49 54.11 55.49 Banks 43.77 43.26 43.77 Soft Drinks 44 43.36 44 Commodity Chemicals 39.57 39.41 39.57 Integrated Oil & Gas 59.9 58.8 59.9 Diversified Industrials 33.61 33.2 33.61 Automobiles 34.19 34.45 34.19 Computer Hardware 27.76 27.02 27.76 Home Improvement Ret 40.32 40.1 40.32 Diversified Industrials 38.28 38.32 38.28 Semiconductors 25.72 25.63 25.72 Computer Services 80.62 80.35 80.62 Pharmaceuticals 63.39 63 63.39 Banks 33.89 33.59 33.89 Restaurants & Bars 32.45 32.56 32.45 Pharmaceuticals 28.23 28.01 28.23 Software 27.4 27.19 27.4 Pharmaceuticals 25.47 25.25 25.47 Nondurable Household 55.48 55.4 55.48 Fixed Line Telecommun 24.08 23.77 24.08 Aerospace 50 49.78 50 Fixed Line Telecommun 32.71 32.29 32.71 Broadline Retailers 44.96 45.29 44.96 Broadcasting & Entert 25.19 25.25 25.19