Reference no: EM133197976

Assignment - Financial Management Risk and Return Questions

Daniel's Portfolio - Risk and Return Case

Assignment - Provide a quick rundown of Daniel's situation. Discuss strategies and goals of how can he "add value". Think about issues such as efficiency, risk-return, and how to add value. Include a recommendation of a portfolio make-up (weights, or even suggestions of other stocks).

1. Estimate and compare the risk and return of each stock and the S&P 500 (i.e. annual standard deviation over the past five years). Which stock appears to be riskiest? How might the expected return of each stock relate to its riskiness?

2. If the portfolio was equally weighted (20% in all stocks and ETF) what is the resulting portfolio position (risk and return)? How does the variability of each stock affect the portfolio? How does this relate to your answer in question 1 above? How would the portfolio risk and return change if 50% of it is in SBUX, 20% in SPY, and 10% in each of the remainder securities.

3. Compute the "beta" for each stock. What does beta measure? (Use SPY as the measurement of the Market). How does this relate to your previous answers? What is the portfolio beta (for the equally weighed)? What does it indicate?

4. What is the required rate of return for each stock (CAPM)? What is the CAPM for the (equally-weighed) portfolio? Explain the number and put it into context? (Use the average Risk-Free rate given below).

5. In what stock(s) (if any) should Daniel invest in? Make a recommendation of what you would do if you were Daniel. What portfolio construction would you recommend? Would you try something different?

Write this report in sections, make sure each section has a heading. The first section: Risk and Return of each individual stock (Q. 1). Second section: portfolio risk and return (Q. 2 & 3). Section 3: Expected Return (Q. 4). And finally, Section 4: Recommendation (Q. 5).

Attachment:- Risk and Return Case Files.rar