solution20report1711347035972_1711347516284 (3)

.docx

School

University of Utah *

*We aren’t endorsed by this school

Course

4070

Subject

Business

Date

Apr 3, 2024

Type

docx

Pages

Uploaded by PrivatePelican1484

Department of Finance David Eccles School of Business University of Utah Spring 2024 FINAN 4070-Investments Please note that all guidelines below apply to all students and all projects. Guidelines are nonnegotiable. Guidelines for submissions: - Projects can be submitted to Canvas from the time the assignment is posted until the deadline. Project 1 must be submitted , submissions will close. No late projects will be accepted or graded. To ensure a project is turned in on time, please submit early, incomplete versions of projects periodically leading up to the due date. Only the last project submission before the due date will be graded. - Hard copies of projects will not be accepted. Only digital submissions will be graded. - You are expected to cite any and all sources used in the completion of this project. Anything taken directly from the course notes or text should be quoted appropriately. An informal list of resources at the end of the project write-up is sufficient for a works cited page. - Turn in both a Microsoft Word document of your project write-up (fill in the blanks) and a Microsoft Excel spreadsheet with your analysis by uploading them to Canvas. Only Word documents and Excel spreadsheets will be accepted (no pdfs allowed). You are expected to show all work in your spreadsheet . If I cannot find the work in your spreadsheet, you will receive a 0 for the question, regardless of what is presented in your write-up. - If you have difficulty turning your project in via Canvas, email the project to me immediately. If you wait until after the deadline to alert me to a problem, your project will be counted as late and will not be graded. - Any projects with blatant plagiarism —sentences or phrases directly lifted from the internet without appropriate quotations and citation— will receive a zero for the project and all students involved will be charged with an Honor Code violation. - Students are expected to conform to basic conventions of standard written English. If your writing is riddled with errors, misspellings, typos, random capitalizations, and/or font changes to the point where it becomes distracting to your reader, I reserve the right to deduct up to 10 points from your final grade. 1

- Please round all final answers to five decimal places . Do not round intermediate calculations. Guidelines for groups: - Students are expected to complete this project individually or in a group of two or three students. - You are responsible for forming your own teams. - You may only work with students in the same section of FINAN 4070. - Each group/pair of students need only turn in one project—please remember to put the names of all student collaborators on the first page. - Each student in the group will receive the same grade. - If you have any questions or need assistance, please see me in office hours or contact me. Please keep mind that many students will wait until the last minute to seek help. Come to office hours the week before the project is due and beat the rush. - I will not “pre-grade” assignments. If you have specific questions, I am happy to answer them. However, I will not look over assignments to see if everything is “right” before the submissions are due. - There should be no discussion of this project between teams. If you have elected to work alone, the only person with whom you may discuss this project is me. All teams of students are expected to perform the entire analysis (collecting data, analyzing data, and interpreting the results) by themselves. Therefore, illicit collaboration on this project includes, but is not limited to: sharing data between groups, sharing spreadsheets between groups, looking at another team’s spreadsheet for “inspiration,” sharing write-ups between groups, discussing the answers to short- answer questions with a person in another group, discussing any part of this project with students from previous years’ classes, and consulting with or using spreadsheets from students from previous years’ classes. Any discussion of this project outside teams constitutes a violation of the Honor Code. Notes on grading: - Any re-grade requests or challenges to grading must be submitted in writing within one week following receiving your grade. 2

Project 1 Write-up Name(s) ________________________________________ Section I – Index creation and calculations 1. You are creating an index with five stocks: McDonald's Corporation (MCD), Eli Lilly and Company (LLY), Microsoft Corporation. (MSFT), Entergy Corporation (ETR), and American Express Company (AXP). Begin by downloading monthly prices from Yahoo! Finance for all five stocks from 1/1/2019 to 12/31/2023. Compute the monthly holding period returns to the securities. Fill in the following table with the first few rows of your results: (4 Points) Monthly Adjusted Close Prices Date MCD LLY MSFT ETR AXP 1/1/2019 158.4 110.4 98.98 73.10 95.3 2/1/2019 162.8 116.3 106.18 76.49 100.4 3/1/2019 169.3 120.1 112.26 79.17 101.9 4/1/2019 176.1 108.4 124.32 80.22 109.2 Monthly HPRs Date MCD LLY MSFT ETR AXP 1/1/2019 -- -- -- -- -- 2/1/2019 2.83% 5.36% 7.27% 4.64% 4.90% 3/1/2019 3.29% 2.74% 5.27% 2.46% 1.44% 4/1/2019 4.03% -9.80% 10.73% 1.32% 7.25% 2. Calculate averages, sample standard deviations, and correlations using your HPRs. Fill in the following table with your results: (4 Points) MCD LLY MSFT ETR AXP arithmetic average 121 319 248 76 153 geometric average 1.05000 % 2.85700% 2.28490% 0.53300% 1.14600 % standard deviation 55.99 83.80 63.99 68.82 88.64 Correlations MCD LLY MSFT ETR AXP MCD 1 -- -- -- -- LLY 0.0933 1 -- -- -- 3

MSFT 0.4564 0.3347 1 -- -- ETR 0.5960 -0.0579 0.3249 1 -- AXP 0.5300 -0.006 0.4080 0.3510 1 3. Create a price-weighted index using your five stocks. What are the arithmetic and geometric averages and sample standard deviation for your price-weighted index returns? (4 Points) arithmetic average = 191.12052 geometric average =0.01803 standard deviation =47.02617 4. Create an equal-weighted index using your five stocks. What are the arithmetic and geometric averages and sample standard deviation for your equal-weighted index returns? (4 Points) arithmetic average = 183.60391 geometric average = 0.01728 standard deviation =47.10242 5. Calculate the number of shares you must have in each stock for each month for your equal-weighted index returns, assuming an initial portfolio value of $1,000,000. How many shares of each stock should you have for the first three months of the sample? The last three months of the sample? Fill in the table below: (4 Points) MCD LLY MSFT ETR AXP 1/1/2019 1263 1812 2021 2736 2098 2/1/2019 1228 1720 1883 2615 1992 3/1/2019 1182 1665 1782 2526 1964 10/1/2023 771 362 593 2141 1379 11/1/2023 718 339 530 2019 1175 12/1/2023 678 344 533 2000 1071 6. Create a market-value weighted index. Assuming you have 40 shares of MCD, 45 shares of LLY, 50 shares of MSFT, 20 shares of ETR, and 35 shares of AXP. What are the arithmetic and geometric averages and sample standard deviation for your market value- weighted index returns? (4 Points) arithmetic average = 204.89281 geometric average = 0.01937 standard deviation = 47.98575 4

7. For which index is your average return greater, price-weighted or equal-weighted? Why? (Hint: a complete answer will include a very specific discussion of your numbers. You may want to support your assertions with calculations.) (4 Points) The price-weighted index has a higher average return than the equal-weighted index, with arithmetic averages of 191.12052 and 183.60391 respectively. Whereas, in terms of geometric averages, the equal- weighted index outperforms the price-weighted index, with values of 103 and 96.5. it is noticed, the price-weighted index exhibits no much volatility, as indicated by its standard deviation of 47.02617 compared to 47.10242 for the equal-weighted index. This difference in performance can be attributed to the price-weighted index giving more weight to higher-priced stocks, potentially capturing stronger-performing stocks. In contrast, the equal-weighted index assigns the same weight to each stock, which might dilute the impact of high performers. Thus, in this scenario, the price-weighted index demonstrates better performance in terms of average returns and volatility. 8. For which index is your average return greater, price-weighted or market-value- weighted? Why? (Hint: a complete answer will include a very specific discussion of your numbers. You may want to support your assertions with calculations.) (4 Points) The average return for the price-weighted index (191.12052) is lower than that of the market value-weighted index (204.89281). This is because the Market weighted index considers market capitalization, which may fully capture the price movements of individual stocks with higher prices. 9. For which index is your average return greater, equal-weighted or market-value- weighted? Why? (Hint: a complete answer will include a very specific discussion of 5

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version