Project 1, Part 1. Initial selection of stocks. Due date: 11/07/2013.

(This Part is of 10% of your Project 1 grade).

Assume that you have $100,000. You will use this to form a hypothetical portfolio by investing it in 5 stocks. No short sales, fractional shares, or margin trades are permitted. To determine how much you have invested in any particular stock, multiply the stock price by the number of shares you buy. You must use at least $90,000. Any funds left over will be held as cash.

If you wish to make any trades during the semester, you may do so within the following rules:

1. Each trade (not including your initial investment) will cost you a $10 commission. For example, selling a stock and buying another costs you $20.

2. Trading is allowed between 11/09/2013 and 11/18/2013.

3. You must always have exactly 5 stocks in your portfolio. If you sell one, you need to buy another. Keep at least $90,000 invested at all times.

4. Trades are “all or nothing.” If you sell a stock, you have to sell all your shares at once. If you already own a stock, you cannot buy additional shares in it.

5. You can only trade at closing prices.

6. You need to notify me about the trades you make within 24 hours by e-mail.

7. The maximum number of trades allowed during the term is 5.

Deliverable:

1. Spreadsheet that includes the number of shares you purchased for each stock and the 11/06/2013 closing prices of your stocks. Also, include your total investment and the amount held in cash. To get stock price information, go to www.google.com or www.yahoo.com and click on “Finance”. Enter the ticker symbol of your stock and click on historical prices. Use the column that contains closing prices.

2. Also, tell me why you chose these particular stocks.

Project 1, Part 2. Track your portfolio and companies throughout the term and be prepared to talk about the stocks, their performance, and any changes you’ve made in your portfolio. (This Part is of 40% of your Project 1 grade and counts toward Discussion Board participation).

An easy way to set up your portfolio is to track it in Yahoo finance or Google finance, but you can also record the prices in a spreadsheet yourself – this will help later.

Keep up with the performance of your portfolio and major news about your stocks. Be prepared to talk about any trades you’ve made. In class/discussion board/chats, we will periodically talk about how the portfolios are performing, so check it regularly. I will expect you to talk about your portfolio and I may call on you. This should be fun – and these are easy participation points!

Project 1, Part 3: Assessment of your portfolio. Due: 11/21/2013. (This Part is of 50% of your Project 1 grade).

For this Part, you will be making a report to your investment committee that discusses and summarizes the performance of your stock portfolio. Use closing prices as of 11/18/2013 to calculate your returns. What is the final market value of your portfolio (including dividends received)? If the final market value of your portfolio is less than $100,000, your portfolio lost money.

Calculations: Use the 11/18/2013 closing price of your stocks to calculate your returns.

1. Report the “purchase” and “sale” price of your stocks from the beginning and end of the semester along with any dividends you might have received. Calculate the buy-and-hold return of each stock [(MVend – MVbeginning + DIV) / MVbeginning] and the buy-and-hold return on your portfolio.

2. Determine the final market value of your portfolio (including dividends received). If the final market value of your portfolio is less than $100,000, your investment lost money.

3. Calculate the market value of

a. Your portfolio for each day (including cash). I suggest that you do this by adding up the daily closing market values of your assets held and the cash you hold, including the total dividends received up to date.

b. The S&P 500 index portfolio over this same period assuming you keep the same amount in cash. We are using the S&P 500 index as our proxy for the market.

4. Plot the daily market value of your portfolio and the daily market value of the S&P 500 using your calculations in #3

5. Using the market values you calculated in #3, calculate the daily returns (percent) for

a. your portfolio

b. The S&P 500 index portfolio.

6. Using your calculations in #5, calculate

a. The average daily return and the standard deviation of daily returns for both the S&P 500 index and your portfolio.

b. your portfolio’s beta by calculating the covariance of your portfolio’s daily returns with the S&P 500’s daily returns and dividing that by the variance of the S&P 500.

Write-up: Assume that you are preparing a relatively short report (maximum of 5 pages single-spaced) for your investment committee. You will be graded on the quality of your writing as well as the quality of your analysis. Do not simply answer the following questions – this should be financial report! These questions are intended to provide guidance.

1. Introduction

2. Comment on the individual and portfolio returns and on any information/events (market-wide or firm-specific) that may have contributed to the performance of your stocks. Describe and explain any trades you made. (Suggested length: a short, concise paragraph for each stock).

3. From your calculations, if you held the S&P 500 instead of your stocks, how much money would you have ended up with? Would you have been better or worse off to hold the index? Analyze the reasons for any differences.

4. Based on your calculations for standard deviation and beta, how risky was your portfolio compared to the index? Again, analyze the causes of the differences.

5. Finally, what are your plans going forward? That is, if this class continued and you had the chance to alter your portfolio holdings now, would you choose to sell any of your stocks or would you want to keep holding them? What will you tell the investment committee? Be explicit.

Deliverables:

1. Your report (5 pages single-spaced maximum, 12 pt. font)

2. Spreadsheet of returns and calculations, and market value plot – 2-pages maximum – make it neat and readable.

Subject | Business |

Due By (Pacific Time) | 11/07/2013 12:00 am |

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