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You are a financial analyst and your boss is ready to give you a bit more responsibility and allow you to interact directly with clients.
You are a financial analyst and your boss is ready to give you a bit more responsibility and allow you to interact directly with clients. You are tasked with picking a stock to pitch to your first client. You want to present a robust analysis of the stock of your choice. Using the past 3 years of data, please write an R-script that answers the following questions:
- Analyze the daily distribution of returns plot the density function. Does it look like its normally distributed?
- Estimate the annual mean returns and annual standard deviation of returns.
- Simulate the daily price path over the next 6 months (approximately 126 days) using the estimates from (2) above and assuming that prices follow a lognormal distribution. Plot the outcome of the simulation.
- Simulate ten expected daily price paths like the one in (3) above and graph them on the same graph.
- Your client wants to invest a large amount into the stock you picked, but they have a fairly short horizon of only 35 days. You oversee risk management for your client and decided to run a VaR analysis for the given horizon. What is the worst-case scenario for the stock price 35 days from now (with 99% certainty)?
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