Question
Rob McGowan collects data from General Motors, General Electric, Oracle, and Microsoft. His professor seeks to form a portfolio using these stocks. Provide a quick
Rob McGowan collects data from General Motors, General Electric, Oracle, and Microsoft. His professor seeks to form a portfolio using these stocks.
Provide a quick rundown of the issues that the professor face while creating his portfolio. Discuss what your goals and objective would be if you were creating this portfolio, how can you 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).
Estimate and compare the monthly returns and variability (standard deviation) of each stock with that of the DJIA Index.
Which stock appears to be riskiest? Less risky?
How might the expected return of each stock relate to its riskiness?
Suppose the professor decides to make the portfolio with equal weight of stock holding (each stock holds 25% weight in the portfolio). Estimate the resulting portfolio position.
How does each stock affect the variability of the equity investment? What is the risk and return of the portfolio?
What is the correlation between the stocks? How do you think the stocks effect the portfolios risk and return?
How does this relate to your answer in question 1 above?
Compute the beta for each stock (Use DJIA as the market return).
What does beta measure?
How does this relate to your previous answers?
What is the required rate of return for each stock (CAPM)? Explain the number and put it into context? (Use the RF rate given in the second page)
Make a recommendation of what you would do if you were professor. Would you try something different?
What would be your main objective?
How would you weigh each stock in the portfolio? Why? What would be the resulting risk and return?
| Month | Sale date | Risk-Free Rate | GM | GE | Oracle | Microsoft | DJIA |
| 1 | 1 June 1997 | 0.93% | -0.869950 | 10.497540 | 21.134590 | 2.776860 | 4.485357 |
| 2 | 1 July 1997 | 1.05% | 1.710171 | 9.648689 | -0.918270 | 0.450306 | 5.939172 |
| 3 | 1 August 1997 | 1.14% | 14.311720 | 5.415162 | 13.067660 | 12.584050 | 6.108390 |
| 4 | 1 September 1997 | 0.95% | -2.627390 | -9.505210 | 4.180328 | -6.001140 | -6.976050 |
| 5 | 1 October 1997 | 0.97% | 10.834010 | 9.592326 | -5.586150 | 1.270802 | 5.156892 |
| 6 | 1 November 1997 | 1.14% | -1.208230 | -0.700220 | -0.333330 | 0.179265 | -4.255630 |
| 7 | 1 December 1997 | 1.16% | -8.006880 | 10.236920 | -11.120400 | 7.217417 | 4.413641 |
| 8 | 1 January 1998 | 1.04% | 6.896552 | -0.811030 | -30.009400 | -10.125200 | -1.308610 |
| 9 | 1 February 1998 | 1.09% | -0.418240 | 8.503679 | 10.349460 | 19.839060 | 2.523061 |
| 10 | 1 March 1998 | 1.03% | 17.140000 | -2.521010 | -2.070650 | 7.592975 | 5.459818 |
| 11 | 1 April 1998 | 0.95% | -2.117120 | 12.891850 | 30.099500 | 8.473356 | 3.717582 |
| 12 | 1 May 1998 | 1.00% | 1.760057 | -0.416520 | -18.546800 | -0.840890 | 3.143211 |
| 13 | 1 June 1998 | 0.98% | 3.741617 | -2.506180 | -10.798100 | -6.561040 | -2.456520 |
| 14 | 1 July 1998 | 0.96% | -0.884650 | 10.028960 | 5.526316 | 30.618580 | 1.415543 |
| 15 | 1 August 1998 | 0.90% | 3.833245 | -0.658110 | 10.723190 | -0.859390 | -2.894680 |
| 16 | 1 September 1998 | 0.61% | -17.046600 | -7.609790 | -22.860400 | -6.639620 | -10.917700 |
| 17 | 1 October 1998 | 0.96% | -4.778510 | -8.635700 | 31.386860 | 2.785460 | -2.489960 |
| 18 | 1 November 1998 | 0.41% | 20.299240 | 17.077050 | 10.888890 | 1.691332 | 14.066370 |
| 19 | 1 December 1998 | 0.39% | 10.079820 | 4.292582 | 23.346690 | 22.377620 | 4.909059 |
| 20 | 1 January 1999 | 0.34% | 2.512648 | 11.952580 | 16.815600 | 7.088803 | 0.524331 |
| 21 | 1 February 1999 | 0.44% | 30.486980 | 1.411765 | 37.065370 | 24.704360 | 1.789155 |
| 22 | 1 March 1999 | 0.44% | -10.975800 | -1.233120 | -7.102990 | -12.258600 | -0.223850 |
| 23 | 1 April 1999 | 0.29% | 5.181951 | 10.582640 | -29.492100 | 22.169500 | 5.444954 |
| 24 | 1 May 1999 | 0.50% | 9.729500 | -4.247310 | 0.929512 | -13.820300 | 12.023180 |
| 25 | 1 June 1999 | 0.57% | -8.763550 | -2.897730 | -2.148890 | -1.727590 | -3.798840 |
| 26 | 1 July 1999 | 0.55% | -1.994620 | 8.718549 | 48.078430 | 16.165610 | 4.437037 |
| 27 | 1 August 1999 | 0.72% | -8.502140 | -2.125940 | 0.953390 | -6.996380 | -3.799420 |
| 28 | 1 September 1999 | 0.68% | 7.967033 | 5.396384 | -1.154250 | 8.925834 | 2.742073 |
| 29 | 1 October 1999 | 0.86% | -4.355640 | 3.246239 | 20.116770 | -2.597960 | -6.078690 |
| 30 | 1 November 1999 | 1.07% | 10.441770 | 11.298570 | 13.079980 | 2.667259 | 3.655407 |
| 31 | 1 December 1999 | 1.20% | 5.367273 | 4.012059 | 38.100820 | 0.876813 | 3.285621 |
| 32 | 1 January 2000 | 1.32% | 5.300939 | 11.460420 | 67.119410 | 25.077800 | 3.265296 |
| 33 | 1 February 2000 | 1.55% | 14.230200 | -8.341670 | -8.567560 | -11.685000 | -2.786440 |
| 34 | 1 March 2000 | 1.69% | -12.903200 | -3.397310 | 32.407410 | -11.783600 | -8.179750 |
| 35 | 1 April 2000 | 1.66% | 16.444440 | 20.826670 | 7.524476 | 0.077084 | 10.692530 |
| 36 | 1 May 2000 | 1.79% | 9.291357 | 1.323001 | 3.655047 | -19.190100 | -3.654810 |
| 37 | 1 June 2000 | 1.69% | -24.684400 | -1.393070 | -2.271300 | -12.091500 | -1.475980 |
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The House That Bogle Built How John Bogle And Vanguard Reinvented The Mutual Fund Industry
Authors: Lewis Braham
1st Edition
0071749063,0071751157
