You are going to build a portfolio of 25 stocks and write a prospectus for your mini-fund.Consider the following three investors:??Sam is a 25-year-old young professional, employed
This problem requires the use of stocks, excel, mutual funds sheets, CAPM, and so on.
Requirements: 10 sheets
You are going to build a portfolio of 25 stocks and write a prospectus for your mini-fund.Consider the following three investors:??Sam is a 25-year-old young professional, employed in a major city in the northeast.Since joining the workforce three years ago, he has contributed as much money aspossible to his retirement accounts, which are invested in a diverse set of index funds.An avid fan of Benjamin Graham’s “The Intelligent Investor,” he has decided to considera few individual stocks of companies with good and stable long-term prospects as wellas great management.??Riley is 52 years old, and a few months ago, she retired from her well-paying job afteraggressively saving and investing her money prudently for much of her life. While shecould go back to work if necessary, she prefers her financial independence. In order tomaintain a steady cash flow, her portfolio is heavily geared towards high-yielding stocks,allowing her and her family to live mostly off dividend payments for the most part. Awareof the downturn at General Electric and their dividend cut, she focuses on companiesfrom which she expects solid and steady dividend growth.??Michael is in his mid-30s. He did not start a well-paying job until two years ago, andtherefore, he is behind on his retirement savings. To make up for lost time, he iscontributing the maximum allowed to his individual retirement account (IRA), which isinvested in market ETFs. Additionally, he sets aside $10,000 every year for the next tenyears for risky, high-growth investments.Select one of these investors as your client, for whom you create the portfolio of 25 stocks. Yourstocks must be listed on a US stock exchange, and their IPO must have been more than fiveyears ago. Then, perform the following exercises:1. Write one paragraph per stock in your portfolio, explaining clearly why this stock is a goodchoice for your portfolio given the investor profile. Support your answers with both a descriptionof the firm and its business model and appropriate financial ratios.2. Download five years of monthly stock prices from September 2017 to September 2022 andcompute the monthly returns from October 2017 to September 2022. (You need to download 61prices to compute 60 returns.)3. Download the filehttps://mba.tuck.dartmouth.edu/pages/faculty/ken.french/ftp/F-F_Research_Data_Factors_CSV.zipIn this file, you find the excess market return,SMB, HML, and the risk-free rate. Use therisk-free rate to compute the excess returns for your stocks.
4. Run a regression of the stocks returns against the excess market return to find the CAPMbeta.5. Make a forecast for the alpha of each stock, that is, the return that you expect the stock toperform minus the return predicted by the CAPM. Justify your alpha based on the firmsbusiness models and financial ratios.6. Build an active portfolio with the 25 stocks according to the attached pdf.7. Run a regression of the stocks returns against the excess market return, SMB, and HML tofind the market beta, SMB beta, and HML beta. Categorize each company intoa. defensive, neutral or aggressive for the market beta;b. small, neutral or big for the SMB beta;c. value, neutral or growth for the HML beta.8. Run a regression on the portfolio with the weights you found in part 6 against the excessmarket return, SMB, and HML to find the market beta, SMB beta, and HML beta of the entireportfolio.9. Based on your findings and the investment strategy, identify a benchmark portfolio againstwhich you will compare your portfolio.10. Recreate the following sections in the mutual fund sheet? pdf attached:a.Historical Profileb.Rating and Riskc.Portfolio Analysis
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