FIN5130 Mini-Case 1 2017

FIN 5130

Instructor: Dr. Palkar

Mini-Case 1

Late assignments will not be accepted so please plan accordingly. You need to show your working notes for credit. You must submit your work using excel files (with

.xls or .xlsx for credit). You must upload your files on Blackboard under the Assignment Dropbox for credit.

This assignment will require you to analyze time series of monthly returns. Start by retrieving MONTHLY data for the period of 09/01/2013 – 08/31/2017 from Yahoo website for

? S&P 500 Index (ticker: ^GSPC)

? Verizon Communications Inc. (ticker: VZ) ? Chevron Corporation (ticker: CVX)

? Pfizer Inc. (ticker: PFE)

Instructions for downloading the data from Yahoo! Website (https://finance.yahoo.com/): To obtain the monthly data for each company, on Yahoo! Finance website, enter the ticker symbol under Quote Lookup. Then, click on “Historical Data”. Enter “Time Period” as given above. For “Frequency”, make sure Monthly is selected and then click on “Apply”. Click on “Download Data”.

Saving your final file:

Keep only Date and Adj Close columns for each company. Put all three sets of data in one excel file to do further analysis.

Very important: Save your final file as a .xls or .xlsx file before you start the computations. Comma delimited (.csv) files do not retain the formulae and cell references after closing the file. You will receive a grade of zero if your file does not contain cell references and formulae to show how you arrived at the various answers.

Calculating Returns:

Use the ‘Adj Close’ column to obtain returns for each period. Remember that the Adjusted Close column has already adjusted the prices for dividends and stock splits so you do not have to adjust for it again. Just use the adjusted close column to obtain the return for each month t as follows:

Rt = Adjusted Closet ?1

Adjusted Closet?1

Solve for the following:

A. What is the average return and standard deviation of returns for (i) S&P 500, (ii) Verizon, (iii) Chevron, and (iv) Pfizer. Comment on what you find.

B. Calculate the covariance and the correlation coefficient of returns between (i) Verizon and Chevron, (ii) Verizon and Pfizer, and (iii) Chevron and Pfizer. Comment on the statistics.

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FIN 5130

Instructor: Dr. Palkar

Mini-Case 1

C. Calculate the stock betas: (i) Calculate Verizon’s beta for the 09/01/2013 – 08/31/2017 period, (ii) Calculate Chevron’s beta for the 09/01/2013 – 08/31/2017 period, and (iii) Calculate Pfizer’s beta for the 09/01/2013 – 08/31/2017 period. Comment on the betas.

D. If you were to form a portfolio that had 34% of S&P, 33% of Verizon, and 33% of Chevron, what would be the average return and the standard deviation of returns for your portfolio? (Ignore the fact that both Verizon and Chevron may already be included in the S&P 500)

E. If you were to add Pfizer to your portfolio so that you now had 25% S&P, 25% Verizon, 25% Chevron, and 25% Pfizer, what would be the new average return and standard deviation of returns for your portfolio? Is Pfizer a good addition to your portfolio? Why do you think so? (Ignore the fact that Verizon, Chevron, and Pfizer may already be included in the S&P 500)