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Stocks April 1, 2014 April 1, 2017 (8.5 points total) In April 2014, an investor purchased $10,000 of each stock shown in Table 1 below.

Stocks April 1, 2014 April 1, 2017 (8.5 points total)

In April 2014, an investor purchased $10,000 of each stock shown in Table 1 below.

Portfolio Changes April 2017

The investor decides to keep her best performing stock in each industry and sell the rest to generate cash for a real estate investment. Using the information in the Table below, which stock in each industry would you advise this investor to keep? Why? Be sure to discuss both risk and return. Record your answers in the table below.

Industry

Stock Symbol

Value of Shares 2017

Beta

Required Rate of Return*

Dividend Yield 2017

Annual Rate of Return 2017

Average Rate of Return

(2014 - 2017)

Coefficient of Variation, CV

Life Insurance

Prudential

PRU

$14,297.17

1.690

10.8%

3.7%

40.0%

14.1%

1.61

Life Insurance

MetLife

MET

$11,007.99

1.610

10.3%

3.5%

20.4%

4.0%

3.80

Apparel Stores

Nordstrom

JWN

$8,589.59

0.990

6.7%

2.9%

-10.0%

-2.8%

-9.04

Apparel Stores

TJX Companies

TJX

$13,549.39

0.660

4.8%

1.4%

1.7%

10.9%

0.79

Restaurants

Dunkin' Brands

DNKN

$12,443.78

0.190

2.0%

2.6%

16.8%

8.3%

1.77

Restaurants

Panera

PNRA

$20,396.16

0.310

2.7%

0.0%

45.5%

27.4%

0.57

Discount Stores

Wal-Mart

WMT

$9,913.91

0.130

1.7%

3.0%

12.0%

0.2%

63.60

Discount Stores

Target

TGT

$9,486.81

0.520

3.9%

3.0%

-30.1%

1.5%

20.53

Portfolio Value (before stock sale)

$99,684.79

0.745

Problem continues on next page

Industry

Companys Stock Symbol

Rationale for keeping this stock and not the other in this industry

Life Insurance

PRU or MET?

Apparel Stores

JWN or TJX?

Restaurants

DNKN or PNRA?

Discount Stores

TGT or WMT?

New Portfolio

For each stock you chose to keep in the portfolio, enter the companys stock symbol, value of shares April 2017 and beta from Table 2 into the chart below.

Then calculate:

a) Total value of new portfolio

b) % of portfolio value for each stock

c) Weighted beta of each stock and beta for the new portfolio

Industry

Company's Stock Symbol

Value of Shares

April 2017

% of New Portfolio

Beta

Weighted Beta

Life Insurance

Apparel Stores

Restaurants

Discount Stores

New Portfolio

d) As measured by beta, is the New Portfolio more or less risky than the one shown in Table 2? (1.0 point)

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