a) Select 10 stocks
b) Obtain stock prices over previous 61 months (see specific instruction in “Solver & Beta Estimation”).
c) Obtain the monthly risk-free returns and the returns on the overall stock market over 60 months (see specific instruction in “Solver & Beta Estimation”).
d) Obtain the risk-free rate and expected stock market return for the future one month or one year following the month in which your historic data in c) ends (assistance will be provided).
e) Compute 60 monthly returns for each stock and use these returns, plus any other data, to conduct a thorough analysis of the past performance of each stock. You should aim to utilize as much as is possible from the material learned in the course.
f) Estimate each firm’s beta using the historic stock returns, stock market returns, and risk-free returns obtained in c) and e) (see specific instruction in “Solver & Beta Estimation”).
g) Estimate the required return on each stock for the next month or year (assistance will be provided).
h) Using Solver, the above data, and all necessary computations, optimize 3 portfolios: i) one for a highly risk averse investor, ii) one for an investor with low risk aversion, and iii) one for an investor with average risk aversion [each portfolio must aim to contain all 10 stocks, but at least 8 of the 10].
i) For each optimized portfolio, write a short “sales pitch” to the investor to get him/her to invest in your portfolio.
The project has two deliverables.First, the sales pitch to be delivered to each of the three investors above. It should be a professional WORD document containing at least the following components.
1. Stock selection and investment philosophy – Describe the process you followed in choosing the stocks and describe your general investment philosophy in putting together the portfolio for each investor.
2. Company profile – Provide a brief description of each firm that informs the potential investor of the nature of the firm’s business, its industry and competitive position in the industry. Try not to use more than 40% of your text space to do all the firm descriptions.
3. Historic performance and risk analyses – Write a summary of the analysis of the historic data to provide the investor a clear picture of the past performance of the firms you have selected. Ensure that you place any estimates you consider relevant in tables, charts, and graphs in the appendix section of your report. Reference in the text any table, graph, or chart that you include in the appendix and only include in the appendix the tables, graphs, and charts that you reference in the text.
4. Optimized portfolio – Describe the portfolio for each of the three prospective clients described above. You need to tell each client/investor the specific objective of the portfolio you have selected for her/him, as well as the characteristics of the portfolio.
Your sales pitch should be such that the investor gets a clear picture of the composition of her/his portfolio, the past performance of the constituent stocks (risk, return, and the risk-return trade-off), and expected/required return and any other relevant indications of the likely future performance of the portfolio.
Second, the other project deliverable is a separate EXCEL file that will contain all the technical inputs and outputs underlying the sales pitch. It should be clear and easy to follow, with computations labeled so that I know what you are doing.
0 comments