1. (20 points) a. Compute and show the annual holding period return for each of the stocks, and also...

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1. (20 points) a. Compute and show the annual holding period return for each of the stocks, and also for the market for each of 20x0, 20x1, 20x2, 20x3, 20x4. b. compute and show a total return including dividends, for each stock for the entire 5 year period of time. c. Convert the 5-year total return into an annual simple average return, and into an effective annual rate (EAR) compound return XXXXXXXXXXpoints) Use the Capital Asset Pricing Model to compute the expected return for each stock, and the market. Assume the expected return on the market (”Rm”) is 7.0% XXXXXXXXXXpoints) Compute the coefficient of variation (“cv”) for each stock and the market for the total 5 year period from 20x0 to 20x4. Use the effective annual rate of return (EAR) for a measure of a stock’s average return. The cv indicates the amount of risk incurred on an investment, per unit of return XXXXXXXXXXpoints) Determine whether Daryl should buy or sell any of the stocks based on your quantitative analysis XXXXXXXXXXpoints) Are there other issues Daryl should consider before buying any of the stocks, or buying a market index? XXXXXXXXXXpoints) Briefly research a definition of insider trading, and SEC regulation fair disclosure (‘reg FD’) https://www.sec.gov/fastanswers/answers-regfdhtm.html. How are reg FD or Insider Trading issues relevant for what Daryl does to gather investment information, if at all?

Prince · Accepted Answer

Answer 1 (Calculations in attached excel): 
	Stock
	Year
	Beginning Price
	Dividend 
	Ending Price
	Holding Period Return
	DD
	2010
	$32.00
	$1.00
	$35.00
	12.50%
	 
	2011
	$35.00
	$1.00
	$31.00
	-8.57%
	 
	2012
	$31.00
	$1.10
	$36.00
	19.68%
	 
	2013
	$36.00
	$1.25
	$40.00
	14.58%
	 
	2014
	$40.00
	$1.25
	$41.00
	5.63%
	 
	 
	5 Year HPR
	 
	 
	45.63%
	 
	 
	Annual Return
	 
	 
	9.13%
	 
	 
	EAR
	 
	 
	7.807%
	
	
	
	
	
	
	Stock
	Year
	Beginning Price
	Dividend 
	Ending Price
	Holding Period Return
	MS
	2010
	$10.00
	$0.00
	$18.00
	80.00%
	 
	2011
	$18.00
	$0.00
	$13.00
	-27.78%
	 
	2012
	$13.00
	$0.00
	$21.00
	61.54%
	 
	2013
	$21.00
	$0.00
	$35.00
	66.67%
	 
	2014
	$35.00
	$0.00
	$32.00
	-8.57%
	 
	 
	5 Year HPR
	 
	 
	220.00%
	 
	 
	Annual Return
	 
	 
	44.00%
	 
	 
	EAR
	 
	 
	26.191%
	
	
	
	
	
	
	Stock
	Year
	Beginning Price
	Dividend 
	Ending Price
	Holding Period Return
	PBB
	2010
	$15.00
	$0.80
	$22.00
	52.00%
	 
	2011
	$22.00
	$1.50
	$40.00
	88.64%
	 
	2012
	$40.00
	$1.50
	$38.00
	-1.25%
	 
	2013
	$38.00
	$0.50
	$37.00
	-1.32%
	 
	2014
	$37.00
	$0.50
	$32.00
	-12.16%
	 
	 
	5 Year HPR
	 
	 
	145.33%
	 
	 
	Annual Return
	 
	 
	29.07%
	 
	 
	EAR
	 
	 
	19.661%
	
	
	
	
	
	
	
	
	
	
	
	
	Stock
	Year
	Beginning Price
	Dividend 
	Ending Price
	Holding Period Return
	Market
	2010
	$1,200.00
	 
	$1,400.00
	16.67%
	 
	2011
	$1,400.00
	 
	$1,800.00
	28.57%
	 
	2012
	$1,800.00
	 
	$1,750.00
	-2.78%
	 
	2013
	$1,750.00
	 
	$1,600.00
	-8.57%
	 
	2014
	$1,600.00
	 
	$1,700.00
	6.25%
	 
	 
	5 Year HPR
	 
	 
	41.67%
	 
	 
	Annual Return
	 
	 
	8.33%
	 
	 
	EAR
	 
	 
	7.215%
Answer 2(Calculations in attached excel):
	CAPM Formula
	 
	E(R) = Rf + Beta*(Rm - Rf)
	 
	Rf
	1.25%
	Rm
	7%
	 
	 
	Company - DD
	 
	Beta
	0.75
	E ( R )
	5.5625%
	 
	 
	Company - MS
	 
	Beta
	1.7
	E ( R )
	11.0250%
	 
	 
	Company - PBB
	 
	Beta
	1.

1. (20 points) a. Compute and show the annual holding period return for each of the stocks, and also for the market for each of 20x0, 20x1, 20x2, 20x3, 20x4. b. compute and show a total return...

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