Compute and show the annual holding period return for each of the stocks, and also for the market for each of 20×0, 20×1, 20×2, 20×3, 20×4. b. compute and show a total return inc
1. (20 points) a. Compute and show the annual holding period return for each of the stocks, and also for the market for each of 20×0, 20×1, 20×2, 20×3, 20×4. b. compute and show a total return including dividends, for each stock for the entire 5 year period of time. c. Convert the 5-year total return into an annual simple average return, and into an effective annual rate (EAR) compound return.
2. (20 points) Use the Capital Asset Pricing Model to compute the expected return for each stock, and the market. Assume the expected return on the market (”Rm”) is 7.0%
3. (10 points) Compute the coefficient of variation (“cv”) for each stock and the market for the total 5 year period from 20×0 to 20×4. Use the effective annual rate of return (EAR) for a measure of a stock’s average return. The cv indicates the amount of risk incurred on an investment, per unit of return.
4. (10 points) Determine whether Daryl should buy or sell any of the stocks based on your quantitative analysis.
5. (20 points) Are there other issues Daryl should consider before buying any of the stocks, or buying a market index?
6. (20 points) Briefly research a definition of insider trading, and SEC regulation fair disclosure (‘reg FD’) https://www.sec.gov/fastanswers/answers-regfdhtm.html. How are reg FD or Insider Trading issues relevant for what Daryl does to gather investment information, if at all?
Q1 to Q3
Stock | Year | Beginning Price | Dividend | Ending Price | Holding Period Return |
Intel | 2010 | 25.50 | 1.00 | 28.37 | 15.2% |
2011 | 28.37 | 1.04 | 33.46 | 21.6% | |
2012 | 33.46 | 1.20 | 49.66 | 52.0% | |
2013 | 49.66 | 1.26 | 43.03 | -10.8% | |
2014 | 43.03 | 1.32 | 52.37 | 24.8% | |
5 Year HPR | 5.82 | 128.2% | |||
5 Year HPR per Year | 25.6% | ||||
5 Year EAR | 17.9% | ||||
5 Year Converted EAR | 17.9% | ||||
Repeat for Each Stock or Index, across all years. | |||||
Dig Deep | 2010 | 32 | 1 | 36 | |
2011 | 36 | ||||
2012 | |||||
2013 | |||||
2014 | |||||
5 Year HPR | |||||
5 Year HPR per Year | |||||
5 Year EAR | |||||
Pork, Byrd & Belly | |||||
Moon Shine | |||||
Market Index (Russell 4000) | |||||
Capital Asset Pricing Model | |||||
E(R) = Rf + Beta*(Rm – Rf) | |||||
Rf | |||||
Rm | |||||
Dig Deep E(R)? | |||||
Beta | |||||
Standard Dev | |||||
Corr Coeff | |||||
Expected Return For Dig Deep: | |||||
Coefficient of Variation | |||||
CV = Std Dev / HPR or EAR | |||||
Intel | |||||
Std Dev | |||||
EAR | |||||
CV | |||||
E(R) of INTC | |||||
INTC CV |
Q4
Risk versus Return | INTC | PBB | MS | DD | Index |
Return | |||||
5 Year Total Return | 128% | ||||
Annual HPR | 25.6% | ||||
EAR | 17.9% | ||||
Expected Return | |||||
CAPM Expected Return | 0.0% | ||||
Buy/Sell By Rule | BUY | ||||
Risk | |||||
Standard Deviation | 6% | ||||
Beta | 0.94 | ||||
Correlation | 0.50 | ||||
Coefficient of Variation on HPR | 0.23 | ||||
Coefficient of Variation on EAR | 0.33 |
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