Select three companies with publicly traded stock.
For each company, find the closing, monthly stock price for the company over the last four years. Finance Yahoo is an ideal place to find the data. Here is a short video to help you with this process: Once the price data is in a spreadsheet, calculate the percent return for each stock for each month, and then the expected value (or average) return for the stock using the AVERAGE function in Excel. Also calculate the standard deviation of the returns using the STDEV function in Excel.
Find the beta coefficient for each stock on a financial information web site. On Finance Yahoo, you will find beta under the Key Statistics for the company.
Assume you have $300,000 to invest in the stocks chosen. Allocate the $300,000 to the individual stocks selected; basically pretend you are buying the stocks. Now calculate the weight each stock plays in your "portfolio."
Using the expected return and beta coefficients for each stock and the percentage of the $300,000 invested in each, calculate the "portfolio" expected return and the "portfolio" beta. Use Equation 7-4 for both these values, keeping the same weights, but changing the variables.
The submitted file must include a table of the following data:
- the companies selected
- amount of money invested in each stock and the associated weight given to each stock in the portfolio
- the average return of each stock,
- the standard deviation of the returns for each stock,
- the beta coefficient for each stock,
- the portfolio expected return and beta, and
- identify which stock in the portfolio has the most total risk and the most market risk.