Project #2789 - Finance

Calculating Returns:

 

Use the ‘Adjusted Close’ column to obtain returns for each period. Remember that the Adjusted Close column has already adjusted the prices for dividends and stock splits so you do not have to adjust for it again. Just use the adjusted close column to obtain the returns.

 

            pt

Rt =  ----------  -1

            Pt =1

 

Solve for the following:

 

A. Calculate the average returns, variance and standard deviation for the returns of each series. Furthermore, calculate the covariance and the correlation coefficient between each of the return series (there should be a total of three correlations and three covariances). Comment on the statistics.

 

B. If you were to form a portfolio that had 50% of the S&P 500 Index and 50% of Merck, what would be the average returns and the standard deviation of that portfolio? (Ignore the fact that both Merck may already be included in the S&P 500)

 

C. If you were to add Nike to your portfolio so that you now had 33% S&P 500, 33% Merck, and 34% Nike, what would be the new average returns and standard deviation? (Ignore the fact that both Nike and Merck may already be included in the S&P 500) Is Nike a good addition to your portfolio? Why do you think so?

 

D. Construct a scatter diagram that shows MRK’s returns on the Y-axis and S&P 500 Index returns on the X-axis. Determine MRK’s beta.

 

E. Construct a scatter diagram that shows NKE’s returns on the Y-axis and S&P 500 Index returns on the X-axis. Determine Nike’s beta.

Subject Mathematics
Due By (Pacific Time) 03/02/2013
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