ALEX SHARPE'S PORTFOLIO
On Friday, January 26, 2007, Alex Sharpe at in her home office and pondered her investment strategy. During her MBA program, Sharpe had learned that in an efficient market, investors should buy and hold the Standard & Poor (S&P) 500 was the most commonly used benchmark for the overall U.S. stock market, Sharpe had invested her children's educational savings in the Vanguard 500 Index Fund, a no-load mutual fund constructed to track the performance of the S&P 500.Risk and Return
The last five years' worth for monthly returns for the Vanguard 500 Index Fund, Hasbro and R.J. Reynolds are provided (see Exhibit 3) In addition to compare the returns on the individual components of her portfolio, Sharpe also wanted to fully compare the risk profiles of the two companies to that of the Vanguard Fund. She wanted to ensure that the expected return f her new portfolio would provide adequate compensation for talking on any new risky assets. To find the investments of her portfolio, Alex has faced the following issues:
- Which stock appears to be riskiest based on the annual standard deviation over the past five years?
- The investment return rate of each stock is correlated with S&P 500 Index?
- How might the expected return of each stock related to its riskiness?
- In what stock(s) (if any) should Alex invest?
Case Analysis Guidelines
1. Use the linear aggression.
- Between S&P 500 and Hasbro; -Between S&P 500 and Reynolds;
2. Use the Excel for analysis.
3. Calculate the following values:
- Sum of Square Total (SST);
- Sum of Square Error (SSE);
- Sum of Square Regression (SSR);
- Coefficient of Determination;
- Correlation Coefficient;
- Mean Square Error (MSE);
4. Use F statistics for evaluate the linearity of the relationship.
Attachment:- CaseProject.rar