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# Portfolio analysis.

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Assume you had a portfolio with shares in each of five stocks. You had General Motors (GM), Walt Disney (DIS), Abercrombie and Fitch (ANF), Nova Med (NOVA), and Corning.

Collected in the Excel file:
Monthly price and dividend data using the dates October 2004 through October 2006 for each stock and the Russell 3000 market index. The adjusted closing price data was used to calculate the monthly returns for each stock and the index. Additionally, T-bill data and put it on a monthly basis to make it useable with the stock data were downloaded. This data is attached in the Excel spreadsheet.

1. In Excel:
a. For each stock, calculate the Sharpe, Treynor, and Jensen measures.
b. Indicate whether each stock beat the benchmark.
c. Which stock had the greatest percent unsystematic risk during the evaluation period and which had the least?

Reminder: Excel will assist in your calculations if you use tools, data analysis. If this does not appear as an option, you have to do an "add-in" for the analysis tool pak. Under data analysis, you can select descriptive statistics, summary statistics, for the means and standard deviation (return and risk). Select regression to find beta using each stock's returns and the appropriate market's return.

2. Write the equation for the ex-post CML.
3. Write the equation for the ex-post SML.
4. What was the fair expected return on Disney during that time frame?

#### Solution Summary

The problem deals with calculating the Sharpe ratio, Treynor measure, and Jensen ratios for evaluating portfolios.

Furthermore the Security Market Line (SML) was described and calculated.

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## Scenario & Portfolio Analysis for a Return on Stocks and Bonds

1) SCENARIO ANALYSIS: Consider the following scenario-analysis

RATE OF RETURN
Scenerio Probability Stocks Bonds
recession .20 -5% +14%
normal economy .60 +15 + 8%
boom .20 +25 + 4%

a. Is it reasonable to assume that Treasury Bonds will provide higher returns in recessions than in booms?

b. How do I calculate the
expected rate of return and standard deviation for each investment?

c. And which investments would you prefer?

2) PORTFOLIO ANALYSIS: Using the data in the above problem and considering a portfolio with weights of .60 in stocks and .40 in bonds.

a. What is the rate of return on the portfolio in each scenario?
b. What is the expected rate of return and standard deviation of the portfolio?
c. Would you prefer to invest in the portfolio, in stocks only, or in bonds only?

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