1. To design and develop an efficient investment portfolio

2. To apply theories of finance to a real world scenario

Project end competencies: After successful completion of this project, the student will:

1. Learn how to compute one-period return of securities,

2. Understand the concept of a random variable,

3. Quantify the concept of risk and its relationship with return,

4. Identify a dominant asset,

5. Construct and use a characteristic line for an asset,

6. Calculate and utilize an asset’s beta coefficient,

7. Use MS Excel and investment software to calculate an asset’s characteristic line,

8. Calculate and interpret the statistical information from a typical regression output,

9. Identify diversifiable risk and non-diversifiable risk,

10. Understand the concept of efficient capital markets,

11. Develop an asset allocation,

12. Understand and use the Markowitz diversification,

13. Use investment software to build an investment portfolio,

14. Measurable Outcomes:

1. Develop an investment strategy (prospectus) that will be used as the model and objective of your investment portfolio. Be as descriptive as possible, since it will incorporate the methodology for selecting securities into the portfolio. Use the prospectus of any mutual fund as an example. This can be found on the firm’s web site or by contacting them directly.

2. Once the objectives of the manager (that is you) have been determined, select the first security that will enter your portfolio. Provide a thorough description of the data in your report. Use Yahoo!Finance to find historical stock prices.

3. Select a stock and S& P 500 Index (ETF) and import 1 year of daily stock prices into MS Excel,

a. Compute the daily return of the stock and S & P 500,

b. Compute the mean and standard deviation of the stock’s return and S & P 500,

4. Use the Data Analysis ADD-In of Excel to compute the stock’s beta coefficient. Regress the stock’s return on the return of the S & P 500.

5. Using the regression output, determine the stock’s systematic and unsystematic risks.

Var(R) = β2 Var [S&P 500] + Var [e] = systematic risk and unsystematic risk

6. Provide an explanation.

7. Repeat above steps for another stock (not S & P 500, you already have that).

8. Create a portfolio using the two stocks above.

9. Calculate portfolio return and variance using a minimum of 10 different weights. Graph the efficient frontier.

10. Calculate the portfolio beta, expected return and portfolio variance for each asset allocation. On each security selected, perform a thorough financial ratio analysis, comparing each security to its peer group.

11. Graph the efficient frontier using the data from above.

Graph the efficient frontier of a portfolio,