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University of Washington *
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Course
350
Subject
Business
Date
Jan 9, 2024
Type
Pages
2
Uploaded by MateMouse1766
The University of Washington
Foster School of Business
Finance 350 Prof. Jarrad Harford
Outline for the Stock Case write-up
The text of your write-up should not exceed 2 pages of single-spaced text, but it can be shorter. You can attach as many supporting materials to your write-up as you like, but they should be relevant and you should explicitly refer to them in your write-up. The write-up should take the form of a memo to me addressing the issues below. Submit only one memo per group. List your group name and
then the group members' names in alphabetical order on the memo
. By December 1
st
, you will have collected 9 sets of prices, starting with the closing prices for Friday, October 6
th
. From these 9 price sets, you can calculate 8 weekly portfolio returns: Return Week 1 = (Value of Portfolio on Oct 14 - Value of Portfolio on Oct 6)/ Value on Oct 6, Return Week 2 = (Value of Portfolio on Oct 20- Value of Portfolio on Oct 13
)/ Value on Oct 13
, and so forth. You will do this for your portfolio and for your $100,000 investments in the Vanguard S&P 500 Index fund, Vanguard Global Equity Fund, and QQQ. While you can put anything you like in the supporting materials for your case, you must
have the following table: Value of Investment in: Stock 1 Stock 2 Stock 3 Stock 4 Portfolio Value Portfolio Return VFINX Value VFINX Return QQQ Value QQQ Return VHGEX Value VHGEX Return Date N/A N/A N/A N/A 10/6 10/13 10/20 10/27 11/3 11/10 11/17 11/24 12/1 N/A N/A N/A N/A N/A N/A N/A N/A Average N/A N/A N/A N/A N/A N/A N/A N/A Std. Dev. N/A means Not Applicable--don't calculate it.
The Average is the average return over the 8 returns that you have calculated. The standard deviation is calculated as in class and in the book: 1.
Calculate the mean value. 2.
Calculate each return's squared difference from the mean. 3.
Sum those squared differences 4.
Divide by 7 ( = 8-1). This gives you the variance. 5.
Take the square root of the variance to get the standard deviation. If you use an Excel function to check your answers, make sure you use the standard deviation function that is based on a sample “STDEV.S” (instead of the population "STDEV.P"). Your write-up should include a brief discussion of firm-specific or market-wide events that significantly affected your portfolio's performance. You should also compare your portfolio with the Vanguard S&P 500 (VFINX), VHGEX and the QQQ index funds on a risk and return basis. The Vanguard S&P index is a good proxy for the overall market, the Vanguard Global Equity Fund captures all equity markets, not just the U.S., and QQQ captures what happened to larger technology or growth stocks. You should answer questions such as: Was your portfolio riskier than the market? Does that make sense given the stocks that you picked? What do you think causes volatility in a stock or the overall market? Did it do better or worse than the market? If you look at the multiples (e.g. P/E) for the stocks you picked, do they match your intuition for your stocks (high multiples for growth stocks vs. low multiples for value stocks)? What was the main thing you learned from this exercise (there is no right answer here--this can be anything)? Correlation coefficients and betas are NOT elements of this exercise.
However, you may find it interesting to look-up the betas of the stocks that you chose.
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