Calculate beta for the monthly returns on reynolds

Assignment Help Portfolio Management

Reference no: EM133682909

Assignment: Case Study Write-up

Alex Sharpe's Portfolio

The Sharpe case is a good opportunity for you to apply the stock and portfolio analysis metrics that we recently covered in class. Put yourself in the shoes of Alex Sharpe, who is moving from a passive investment strategy focused on the Vanguard 500 index fund to an active investment strategy by selecting a specific stock to add to her (small) portfolio.

In the questions below, you are asked to analyze returns for Hasbro and R.J. Reynolds Tobacco Company to determine which stock you should add to the portfolio. Please answer the following questions in your

Task

I. Calculate and compare the annual returns and annual standard deviation on a stand-alone basis for the 5-year period for (i) the Vanguard 500 Fund, (ii) Reynolds stock, and (iii) Hasbro stock. Which stock appears to be riskier, Reynolds or Hasbro?

II. Of the total portfolio investment, suppose 99% of Sharpe's portfolio was invested in the Vanguard 500 Fund and the remaining 1 % was invested in either Reynolds or Hasbro. Calculate the standard deviation of a Vanguard 500-Reynolds portfolio versus Vanguard 500-Hasbro portfolio and compare it to the Vanguard 500's stand-alone standard deviation. Compare this to what you found when you analyzed each of the companies in question I.

III. Calculate beta for the monthly returns on (i) Reynolds, and (ii) Hasbro per the monthly returns on the Vanguard 500. You can use Excel to do this in just the same way as I demonstrated in class. What does the beta for each stock tell you about that stock compared to the Vanguard 500? In this case, the Vanguard 500 is acting as a benchmark for the market. Compare the beta results to what you found in question II.

IV. Use the Capital Asset Pricing Model (CAPM) to determine the required rate of return for Reynolds and Hasbro. For this question, use a risk-free rate of 2%, the average annual return for the Vanguard 500 fund as the market rate, and beta for Reynolds and Hasbro. Explain what the results mean for each stock.

V. Using your calculations from questions I-IV, make a recommendation as to whether Alex should invest 1 % of her portfolio in either Reynolds or Hasbro given that she has just decided to move from a passive to active investing strategy and, according to the case, she ''wanted to begin conservatively."

Reference no: EM133682909

Questions Cloud

Standards for state-created-danger exception : How rigorous should the standards for the state-created-danger exception be? Do you think courts are correct in granting this exception rarely,

Which they claimed sexual harassment : Utilizing the internet, locate newspaper or other reports of instances where women have won court cases in which they claimed sexual harassment

How employees perception and organizational culture impacted : Describe how the employees' perception and organizational culture have been impacted by management's performance.

The company had adopted the replaceable rules : The company had adopted the replaceable rules as its constitution. The company was awarded a Michelin star and has expanded its operations overseas.

Calculate beta for the monthly returns on reynolds : Calculate beta for the monthly returns on (i) Reynolds, and (ii) Hasbro per the monthly returns on the Vanguard 500.

Essay - becoming an advocate of change : Advocating a change which is important to you, something you genuinely believe in. Remember that essay three will be an extension of essay two, so please

Advise venture capital ltd whether they can stop company : Advise Venture Capital Ltd whether they can stop the company from entering into the new business activity and can the shareholders decide the matter?

Process of creating the prototype : Produce as detailed as reasonable overview of the imaginary world that has been built for the purpose of setting stories within it

Draft your dissertation that now includes your introduction : Draft of your dissertation that now includes your introduction, problem statement, purpose, research questions, frameworks and significance.

User Account

All Pages