+1 862 207 3288 Task 1: Individual stocks (25%)
i) Calculate each stockís average monthly return, its return variance and standard deviations throughout the period 01/2007 to 12/2011.
ii) Using the price information of the FTSE All Share Index as a proxy for market portfolio, calculate each stockís beta value throughout the period 01/2007 to 12/2011.
iii) Explain why some stocks have beta values greater than 1 while others are below 1 (you may do some research on firm backgrounds and their business).
Task 2: Portfolio Analysis (25%)
i) Construct three types of portfolios. Portfolio A consists of any of 3 stocks, Portfolio B consists of any of 6 stocks, and Portfolio C consists of 10 stocks. Assuming that each stock has equal weight in the portfolio, calculate Portfolio A, B, and Csí average monthly returns, return variances and standard deviations, and beta values.
ii) Which of the Portfolios A, B, and C, has the highest return standard deviation? Does this portfolio have the highest average monthly return? Can you explain why?
iii) In terms of portfolio beta, which portfolio is the most risky one?
iv)Will the three portfolios have a same ranking, if you rank their betas and return variances respectively? Can you provide economic reasons why the two rankings should be (in)consistent with each other?
Task 3: Comparing individual stock and portfolio (25%)
i) Is Portfolio Bís average monthly return higher than any of 6 individual stocksí average monthly return? Why?
ii) Is Portfolio Bís return standard deviation higher than any of 6 individual stocksí return standard deviation? Why?
iii) Is Portfolio Bís beta value higher than any of 6 individual stocksí betas? Why?
iv) Should investors invest their money in individual stock or in portfolio? Please provide justifications for your answer.
Task 4: Choose your own portfolio (25%)
i) Construct your own portfolio which includes a different number of stocks from Portfolio A, B, and C.
ii) Can you justify why you choose such a portfolio?
iii) Are there any stocks which you should not include in your portfolio? Can you provide your justifications? (You may draw performance graphs of one stock against the market portfolio).
iv) Can you find out which portfolios (i.e. Portfolio A, B, C and your own portfolio) or stocks (i.e. 10 sample stocks) perform badly or good in the period of 2009 to 2011.
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