Compute the return for each year on a portfolio

Assignment Help Financial Accounting

Reference no: EM131450997

Assignemnt: Risk and Return Study

Attached is a excel spreadsheet that has the annual return measured for 12 different stock investments. The spreadsheet shows the average return and standard deviation of the return for the past 15 years. Use this spreadsheet and spreadsheet commands to do the following:

1. Compute the return for each year on a portfolio that contains an equal investment in all 12 securities.

2. Compute the 15-year average return and standard deviation of return for the portfolio that consists of all 12 securities with equally weighted investment.

3. Compute the correlation and covariance between the return on company #12 and the return on the equally-weighted portfolio. Hint: There is a spreadsheet command that does this calculation.

4. Compute the beta of Company #12 using the information you have collected.

5. Now using the beta you created for Company #12, compute the required rate of return using the Capital Asset Pricing Model (CAPM), assuming that the average market return is the return of your equally-weighted portfolio and the risk-free rate of return is 2.5%.

6. If you were told analysts estimate that Company #12 will have a 5% rate of return next year, would you buy the stock? Why or why not?

Your submission should meet the following requirements:

• Complete your work on the Excel sheet provided.
• Be sure to keep your formulas or commands in the cellson your Excel sheet.
• Include any brief explanatory remarks needed, on the Excel sheet.

Attachment:- Annual_Return_Measured.xlsx

Reference no: EM131450997

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