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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...

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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?
Answered Same Day Apr 02, 2023

Solution

Prince answered on Apr 03 2023
26 Votes
Answer 1 (Calculations in attached excel):
    Stock
    Yea
    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
    Yea
    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
    Yea
    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
    Yea
    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
    1.25
    E ( R...
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