Finance problem- 1 hour only
ankit
fwdfina_0005641.zipO945_1.docx
Using any computer file you did not create originally is expressly prohibited and will result in zero credit. Solutions must be typed, printed out, and all pages stapled together. Failure to follow instructions will lead to a reduced grade.
Problem 1: Estimating the Single Index Model [18 points]
A. [12 points] Compute the excess returns for each stock and for the market. Use these excess returns to estimate the market model for each of the 4 stocks. Present the alpha, beta, and residual variance for each of the 4 stocks.
B. [6 points] Using the estimates from Part A, determine the alpha, beta, and residual variances of the following portfolios:
a. 20% XOM, 30% AAPL, 20% TXN, 30% UTX
b. 30% XOM, 20% AAPL, 25% TXN, 25% UTX
Problem 2: Consider the following three stocks and the provided information. Use this information to answer the following questions. [19 points]
Stock: alpha beta Residual
Variance
BIGA 1.50% 1.5 6.344%
NEGA 0.02% 1.2 3.312%
HIVOL 0.35% 1.8 12.222%
Market Excess Return 5.00%
Risk-free rate 1.00%
A. [3 points] Calculate the information ratio for each of the three stocks
B. [4 points] Assume the total return variance for the stock BIGA is 0.1141, or 11.41%. Using the given information, what is the market return variance?
C. [4 points] Determine the composition of the optimal active portfolio.
D. [4 points] Determine the composition of the optimal portfolio (i.e. the optimal allocation to the index portfolio and the portfolio from Part C.
E. [4 points] Compare the Sharpe ratio of the index to that of the portfolio in Part D.
O945_2.xlsx
XOM
| date | TICKER | Stock Return | Market Return | Risk Free Return |
| 20080131 | XOM | -7.78% | -6.12% | 0.21% |
| 20080229 | XOM | 1.11% | -3.48% | 0.13% |
| 20080331 | XOM | -2.79% | -0.60% | 0.17% |
| 20080430 | XOM | 10.04% | 4.75% | 0.18% |
| 20080530 | XOM | -4.20% | 1.07% | 0.18% |
| 20080630 | XOM | -0.71% | -8.60% | 0.17% |
| 20080731 | XOM | -8.74% | -0.99% | 0.15% |
| 20080829 | XOM | -0.02% | 1.22% | 0.13% |
| 20080930 | XOM | -2.94% | -9.08% | 0.15% |
| 20081031 | XOM | -4.56% | -16.94% | 0.08% |
| 20081128 | XOM | 8.68% | -7.48% | 0.03% |
| 20081231 | XOM | -0.40% | 0.78% | 0.09% |
| 20090130 | XOM | -4.20% | -8.57% | 0.00% |
| 20090227 | XOM | -10.70% | -10.99% | 0.01% |
| 20090331 | XOM | 0.29% | 8.54% | 0.02% |
| 20090430 | XOM | -2.10% | 9.39% | 0.01% |
| 20090529 | XOM | 4.65% | 5.31% | 0.00% |
| 20090630 | XOM | 0.81% | 0.02% | 0.01% |
| 20090731 | XOM | 0.69% | 7.41% | 0.01% |
| 20090831 | XOM | -1.16% | 3.36% | 0.01% |
| 20090930 | XOM | -0.78% | 3.57% | 0.01% |
| 20091030 | XOM | 4.46% | -1.98% | 0.00% |
| 20091130 | XOM | 5.33% | 5.74% | 0.00% |
| 20091231 | XOM | -9.16% | 1.78% | 0.01% |
| 20100129 | XOM | -5.51% | -3.70% | 0.00% |
| 20100226 | XOM | 1.54% | 2.85% | 0.00% |
| 20100331 | XOM | 3.05% | 5.88% | 0.01% |
| 20100430 | XOM | 1.18% | 1.48% | 0.00% |
| 20100528 | XOM | -10.14% | -8.20% | 0.01% |
| 20100630 | XOM | -5.61% | -5.39% | 0.01% |
| 20100730 | XOM | 4.57% | 6.88% | 0.01% |
| 20100831 | XOM | -0.22% | -4.74% | 0.01% |
| 20100930 | XOM | 4.53% | 8.76% | 0.01% |
| 20101029 | XOM | 7.61% | 3.69% | 0.01% |
| 20101130 | XOM | 5.28% | -0.23% | 0.01% |
| 20101231 | XOM | 5.12% | 6.53% | 0.01% |
| 20110131 | XOM | 10.34% | 2.26% | 0.01% |
| 20110228 | XOM | 6.56% | 3.20% | 0.01% |
| 20110331 | XOM | -1.64% | -0.10% | 0.01% |
| 20110429 | XOM | 4.58% | 2.85% | 0.00% |
| 20110531 | XOM | -4.59% | -1.35% | 0.00% |
| 20110630 | XOM | -2.50% | -1.83% | 0.00% |
| 20110729 | XOM | -1.95% | -2.15% | 0.00% |
| 20110831 | XOM | -6.64% | -5.68% | 0.01% |
| 20110930 | XOM | -1.88% | -7.18% | 0.00% |
| 20111031 | XOM | 7.52% | 10.77% | 0.00% |
| 20111130 | XOM | 3.61% | -0.51% | 0.00% |
| 20111230 | XOM | 5.37% | 0.85% | 0.00% |
| 20120131 | XOM | -1.20% | 4.36% | 0.00% |
| 20120229 | XOM | 3.86% | 4.06% | 0.00% |
| 20120330 | XOM | 0.27% | 3.13% | 0.00% |
| 20120430 | XOM | -0.45% | -0.75% | 0.00% |
| 20120531 | XOM | -8.27% | -6.27% | 0.01% |
| 20120629 | XOM | 8.83% | 3.96% | 0.00% |
| 20120731 | XOM | 1.50% | 1.26% | 0.00% |
| 20120831 | XOM | 1.17% | 1.98% | 0.01% |
| 20120928 | XOM | 4.75% | 2.42% | 0.01% |
| 20121031 | XOM | -0.31% | -1.98% | 0.01% |
| 20121130 | XOM | -2.70% | 0.28% | 0.01% |
| 20121231 | XOM | -1.80% | 0.71% | 0.01% |
AAPL
| date | TICKER | Stock Return | Market Return | Risk Free Return |
| 20080131 | AAPL | -31.66% | -6.12% | 0.21% |
| 20080229 | AAPL | -7.64% | -3.48% | 0.13% |
| 20080331 | AAPL | 14.78% | -0.60% | 0.17% |
| 20080430 | AAPL | 21.22% | 4.75% | 0.18% |
| 20080530 | AAPL | 8.51% | 1.07% | 0.18% |
| 20080630 | AAPL | -11.29% | -8.60% | 0.17% |
| 20080731 | AAPL | -5.07% | -0.99% | 0.15% |
| 20080829 | AAPL | 6.66% | 1.22% | 0.13% |
| 20080930 | AAPL | -32.96% | -9.08% | 0.15% |
| 20081031 | AAPL | -5.34% | -16.94% | 0.08% |
| 20081128 | AAPL | -13.87% | -7.48% | 0.03% |
| 20081231 | AAPL | -7.90% | 0.78% | 0.09% |
| 20090130 | AAPL | 5.60% | -8.57% | 0.00% |
| 20090227 | AAPL | -0.91% | -10.99% | 0.01% |
| 20090331 | AAPL | 17.70% | 8.54% | 0.02% |
| 20090430 | AAPL | 19.70% | 9.39% | 0.01% |
| 20090529 | AAPL | 7.93% | 5.31% | 0.00% |
| 20090630 | AAPL | 4.87% | 0.02% | 0.01% |
| 20090731 | AAPL | 14.72% | 7.41% | 0.01% |
| 20090831 | AAPL | 2.95% | 3.36% | 0.01% |
| 20090930 | AAPL | 10.19% | 3.57% | 0.01% |
| 20091030 | AAPL | 1.70% | -1.98% | 0.00% |
| 20091130 | AAPL | 6.05% | 5.74% | 0.00% |
| 20091231 | AAPL | 5.41% | 1.78% | 0.01% |
| 20100129 | AAPL | -8.86% | -3.70% | 0.00% |
| 20100226 | AAPL | 6.54% | 2.85% | 0.00% |
| 20100331 | AAPL | 14.85% | 5.88% | 0.01% |
| 20100430 | AAPL | 11.10% | 1.48% | 0.00% |
| 20100528 | AAPL | -1.61% | -8.20% | 0.01% |
| 20100630 | AAPL | -2.08% | -5.39% | 0.01% |
| 20100730 | AAPL | 2.27% | 6.88% | 0.01% |
| 20100831 | AAPL | -5.50% | -4.74% | 0.01% |
| 20100930 | AAPL | 16.72% | 8.76% | 0.01% |
| 20101029 | AAPL | 6.07% | 3.69% | 0.01% |
| 20101130 | AAPL | 3.38% | -0.23% | 0.01% |
| 20101231 | AAPL | 3.67% | 6.53% | 0.01% |
| 20110131 | AAPL | 5.20% | 2.26% | 0.01% |
| 20110228 | AAPL | 4.09% | 3.20% | 0.01% |
| 20110331 | AAPL | -1.33% | -0.10% | 0.01% |
| 20110429 | AAPL | 0.47% | 2.85% | 0.00% |
| 20110531 | AAPL | -0.66% | -1.35% | 0.00% |
| 20110630 | AAPL | -3.50% | -1.83% | 0.00% |
| 20110729 | AAPL | 16.33% | -2.15% | 0.00% |
| 20110831 | AAPL | -1.45% | -5.68% | 0.01% |
| 20110930 | AAPL | -0.91% | -7.18% | 0.00% |
| 20111031 | AAPL | 6.15% | 10.77% | 0.00% |
| 20111130 | AAPL | -5.58% | -0.51% | 0.00% |
| 20111230 | AAPL | 5.97% | 0.85% | 0.00% |
| 20120131 | AAPL | 12.71% | 4.36% | 0.00% |
| 20120229 | AAPL | 18.83% | 4.06% | 0.00% |
| 20120330 | AAPL | 10.53% | 3.13% | 0.00% |
| 20120430 | AAPL | -2.60% | -0.75% | 0.00% |
| 20120531 | AAPL | -1.07% | -6.27% | 0.01% |
| 20120629 | AAPL | 1.09% | 3.96% | 0.00% |
| 20120731 | AAPL | 4.58% | 1.26% | 0.00% |
| 20120831 | AAPL | 9.35% | 1.98% | 0.01% |
| 20120928 | AAPL | 0.28% | 2.42% | 0.01% |
| 20121031 | AAPL | -10.76% | -1.98% | 0.01% |
| 20121130 | AAPL | -1.24% | 0.28% | 0.01% |
| 20121231 | AAPL | -9.07% | 0.71% | 0.01% |
TXN
| date | TICKER | Stock Return | Market Return | Risk Free Return |
| 20080131 | TXN | -7.04% | -6.12% | 0.21% |
| 20080229 | TXN | -3.20% | -3.48% | 0.13% |
| 20080331 | TXN | -5.64% | -0.60% | 0.17% |
| 20080430 | TXN | 3.50% | 4.75% | 0.18% |
| 20080530 | TXN | 11.39% | 1.07% | 0.18% |
| 20080630 | TXN | -13.30% | -8.60% | 0.17% |
| 20080731 | TXN | -13.07% | -0.99% | 0.15% |
| 20080829 | TXN | 0.53% | 1.22% | 0.13% |
| 20080930 | TXN | -12.28% | -9.08% | 0.15% |
| 20081031 | TXN | -8.51% | -16.94% | 0.08% |
| 20081128 | TXN | -20.40% | -7.48% | 0.03% |
| 20081231 | TXN | -0.32% | 0.78% | 0.09% |
| 20090130 | TXN | -2.96% | -8.57% | 0.00% |
| 20090227 | TXN | -4.01% | -10.99% | 0.01% |
| 20090331 | TXN | 15.05% | 8.54% | 0.02% |
| 20090430 | TXN | 10.05% | 9.39% | 0.01% |
| 20090529 | TXN | 7.42% | 5.31% | 0.00% |
| 20090630 | TXN | 9.79% | 0.02% | 0.01% |
| 20090731 | TXN | 13.43% | 7.41% | 0.01% |
| 20090831 | TXN | 2.25% | 3.36% | 0.01% |
| 20090930 | TXN | -3.66% | 3.57% | 0.01% |
| 20091030 | TXN | -0.51% | -1.98% | 0.00% |
| 20091130 | TXN | 7.85% | 5.74% | 0.00% |
| 20091231 | TXN | 3.04% | 1.78% | 0.01% |
| 20100129 | TXN | -13.20% | -3.70% | 0.00% |
| 20100226 | TXN | 8.36% | 2.85% | 0.00% |
| 20100331 | TXN | 0.37% | 5.88% | 0.01% |
| 20100430 | TXN | 6.78% | 1.48% | 0.00% |
| 20100528 | TXN | -6.11% | -8.20% | 0.01% |
| 20100630 | TXN | -4.67% | -5.39% | 0.01% |
| 20100730 | TXN | 6.57% | 6.88% | 0.01% |
| 20100831 | TXN | -6.76% | -4.74% | 0.01% |
| 20100930 | TXN | 17.90% | 8.76% | 0.01% |
| 20101029 | TXN | 9.43% | 3.69% | 0.01% |
| 20101130 | TXN | 7.54% | -0.23% | 0.01% |
| 20101231 | TXN | 2.20% | 6.53% | 0.01% |
| 20110131 | TXN | 4.74% | 2.26% | 0.01% |
| 20110228 | TXN | 5.01% | 3.20% | 0.01% |
| 20110331 | TXN | -2.95% | -0.10% | 0.01% |
| 20110429 | TXN | 3.18% | 2.85% | 0.00% |
| 20110531 | TXN | -0.65% | -1.35% | 0.00% |
| 20110630 | TXN | -7.00% | -1.83% | 0.00% |
| 20110729 | TXN | -8.99% | -2.15% | 0.00% |
| 20110831 | TXN | -11.90% | -5.68% | 0.01% |
| 20110930 | TXN | 1.68% | -7.18% | 0.00% |
| 20111031 | TXN | 15.95% | 10.77% | 0.00% |
| 20111130 | TXN | -2.05% | -0.51% | 0.00% |
| 20111230 | TXN | -3.29% | 0.85% | 0.00% |
| 20120131 | TXN | 11.82% | 4.36% | 0.00% |
| 20120229 | TXN | 3.00% | 4.06% | 0.00% |
| 20120330 | TXN | 0.78% | 3.13% | 0.00% |
| 20120430 | TXN | -4.46% | -0.75% | 0.00% |
| 20120531 | TXN | -10.83% | -6.27% | 0.01% |
| 20120629 | TXN | 0.74% | 3.96% | 0.00% |
| 20120731 | TXN | -4.46% | 1.26% | 0.00% |
| 20120831 | TXN | 6.61% | 1.98% | 0.01% |
| 20120928 | TXN | -5.11% | 2.42% | 0.01% |
| 20121031 | TXN | 2.70% | -1.98% | 0.01% |
| 20121130 | TXN | 4.91% | 0.28% | 0.01% |
| 20121231 | TXN | 4.82% | 0.71% | 0.01% |
UTX
| date | TICKER | Stock Return | Market Return | Risk Free Return |
| 20080131 | UTX | -4.27% | -6.12% | 0.21% |
| 20080229 | UTX | -3.33% | -3.48% | 0.13% |
| 20080331 | UTX | -2.40% | -0.60% | 0.17% |
| 20080430 | UTX | 5.30% | 4.75% | 0.18% |
| 20080530 | UTX | -1.53% | 1.07% | 0.18% |
| 20080630 | UTX | -13.15% | -8.60% | 0.17% |
| 20080731 | UTX | 3.70% | -0.99% | 0.15% |
| 20080829 | UTX | 3.02% | 1.22% | 0.13% |
| 20080930 | UTX | -8.43% | -9.08% | 0.15% |
| 20081031 | UTX | -8.49% | -16.94% | 0.08% |
| 20081128 | UTX | -11.00% | -7.48% | 0.03% |
| 20081231 | UTX | 10.45% | 0.78% | 0.09% |
| 20090130 | UTX | -10.47% | -8.57% | 0.00% |
| 20090227 | UTX | -14.12% | -10.99% | 0.01% |
| 20090331 | UTX | 5.27% | 8.54% | 0.02% |
| 20090430 | UTX | 13.63% | 9.39% | 0.01% |
| 20090529 | UTX | 8.51% | 5.31% | 0.00% |
| 20090630 | UTX | -1.24% | 0.02% | 0.01% |
| 20090731 | UTX | 4.83% | 7.41% | 0.01% |
| 20090831 | UTX | 9.68% | 3.36% | 0.01% |
| 20090930 | UTX | 2.64% | 3.57% | 0.01% |
| 20091030 | UTX | 0.85% | -1.98% | 0.00% |
| 20091130 | UTX | 10.05% | 5.74% | 0.00% |
| 20091231 | UTX | 3.23% | 1.78% | 0.01% |
| 20100129 | UTX | -2.78% | -3.70% | 0.00% |
| 20100226 | UTX | 2.36% | 2.85% | 0.00% |
| 20100331 | UTX | 7.23% | 5.88% | 0.01% |
| 20100430 | UTX | 1.82% | 1.48% | 0.00% |
| 20100528 | UTX | -9.53% | -8.20% | 0.01% |
| 20100630 | UTX | -3.67% | -5.39% | 0.01% |
| 20100730 | UTX | 9.54% | 6.88% | 0.01% |
| 20100831 | UTX | -7.69% | -4.74% | 0.01% |
| 20100930 | UTX | 9.23% | 8.76% | 0.01% |
| 20101029 | UTX | 4.97% | 3.69% | 0.01% |
| 20101130 | UTX | 1.24% | -0.23% | 0.01% |
| 20101231 | UTX | 4.58% | 6.53% | 0.01% |
| 20110131 | UTX | 3.28% | 2.26% | 0.01% |
| 20110228 | UTX | 3.28% | 3.20% | 0.01% |
| 20110331 | UTX | 1.33% | -0.10% | 0.01% |
| 20110429 | UTX | 5.82% | 2.85% | 0.00% |
| 20110531 | UTX | -1.48% | -1.35% | 0.00% |
| 20110630 | UTX | 0.84% | -1.83% | 0.00% |
| 20110729 | UTX | -6.41% | -2.15% | 0.00% |
| 20110831 | UTX | -9.79% | -5.68% | 0.01% |
| 20110930 | UTX | -5.24% | -7.18% | 0.00% |
| 20111031 | UTX | 10.83% | 10.77% | 0.00% |
| 20111130 | UTX | -1.15% | -0.51% | 0.00% |
| 20111230 | UTX | -4.58% | 0.85% | 0.00% |
| 20120131 | UTX | 7.20% | 4.36% | 0.00% |
| 20120229 | UTX | 7.66% | 4.06% | 0.00% |
| 20120330 | UTX | -1.11% | 3.13% | 0.00% |
| 20120430 | UTX | -1.57% | -0.75% | 0.00% |
| 20120531 | UTX | -8.64% | -6.27% | 0.01% |
| 20120629 | UTX | 1.92% | 3.96% | 0.00% |
| 20120731 | UTX | -1.44% | 1.26% | 0.00% |
| 20120831 | UTX | 7.99% | 1.98% | 0.01% |
| 20120928 | UTX | -1.95% | 2.42% | 0.01% |
| 20121031 | UTX | -0.17% | -1.98% | 0.01% |
| 20121130 | UTX | 3.18% | 0.28% | 0.01% |
| 20121231 | UTX | 2.37% | 0.71% | 0.01% |
