Trading and Portfolio Management
General Information (read this first)
This assignment tests your understanding of the
various variablesused in corporate finance rather than the calculations itself.
assumptions underlying the variables used in corporate finance.
organisational and management implications of the various variablesthat are calculated as a part of CF2.
Marks are awarded for four components and the approach used rather than the calculations itself.
Approach (methodology)
Assumptions (Clearly defined)
Application
Calculation
Assignment must be submitted as two files, a Report with a coversheet & appropriate title. and excel file with workings and calculations.
Executive summary is Not Required
Table of Contents is required.
Use the section numbering
You must provide snapshot of information in your report where you have used external information.
Referencing of all the sources used in the assignment is mandatory.
Portfolio Management
1. Prepare a portfolio of a minimum 5 securities from your allocated Market (KOREAN EXCHANGE, only use stocks starting from letters A to E). Provide the reason behind the selection of the companies. Refer to stock allocation list for the stocks allocated to you.
2. Compute the arithmetic average annual return for the 5 companies using daily/monthly % change in share price (ignore the dividend payment) of 10 years (minimum) data. Discuss the results.
3. Compute the geometric average annual return for the 5 companies using daily/monthly % change in share price (ignore the dividend payment) of 10 years (minimum) data. Discuss the results.
4. Calculate the periodic and annual standard deviation of each stock of your portfolio. Discuss the results and your interpretation. Measure 95% probability and 99.73 % probability of each stock and discuss the results.
5. Assuming you own X number (X=100+last two digits of your ID) of each share in your portfolio, calculate the weights of the shares your portfolio. Take today's price to calculate the weight of each stock. Present snapshot of price with time stamp in the appendix of your report. Calculate the Arithmetic return, Geometric return , standard deviation, 95.44% & 99.73% probability of the portfolio. Plot the returns and standard deviation of the stock and portfolio on a scatter plot and discuss your results (optional)
6. Using the daily/monthly data calculate the annual return for each of the 10 years and present it in tabular form.Collect the GDP data (Annual GDP Growth Rate) of the country related to your market for the same years as in Question 2 & 7. Define at least three states of natureand identify the probabilities for the three states of nature. For calculating the probabilities, you may use at-least 10 year economic data.
7. For each state of nature (years in which the state of nature prevailed in your market) calculate the average expected return for each stock. Summarise and present the information in a table.
8. Calculate the Expected Return and Standard deviation (including 95.44% & 99.73% probability) of the stock and portfolio using the revised expected returns (Expected Returns under different states of nature). Compare the results with the previous calculations using only financial data. Discuss the results and implications. Plot and compare the returns and standard deviation of the stock and portfolio on a scatter plot and discuss your results (optional)
9. Calculate beta of each stock using sock return and market return using monthly or daily data for market and the stocks. (You may use covariance formula or regression method to calculate beta). Discuss the results of your analysis. Compare the Beta with standard deviation of each stock and draw meaningful conclusions. Calculate beta of portfolio and discuss its implications by comparing it to the Standard Deviation of the portfolio.
10. Identify the risk-free rate of return (10 year Treasury bond yield) & market return (10 year average) that is appropriate for your portfolio. Using the Beta of each share compute Expected return of each of the five shares using CAPM. Compare your answer with the Expected Return of share that you have calculated earlier using the raw data, then using probability and discuss the implications.
11. Using the Beta of portfolio compute Expected return using CAPM. Compare your answer with the Expected Return of Portfolio that you have calculated earlier and discuss the implications.
12. Select any two stocks and develop the mean variance frontier. Using the data identify the optimal weights of two stocks that will minimise the risk.