Finance Essay Example

Finance 13

1. Daily Net Return= ((Stock Pricet-Stock Pricet-1)/Stock Pricet-1)

Daily Net

-0.2792%

-0.5056%

-0.1367%

-0.5900%

-0.5413%

-0.1983%

-1.8300%

-0.3420%

-1.6920%

-0.9607%

-1.0403%

-0.5892%

-0.1457%

  1. Given a daily risk- free rate of 0.004%, calculate the net daily returns.

PortfolioWeights

AA -0.23942

AXP -0.04187

BA — 0.24731

BAC -0.06242

CAT 0.41804

CSCO -0.14275

CVX 0.64030

DD -0.00300

DIS 0.12970

GE -0.37198

HD -0.40258

HPQ 0.12208

IBM 0.7322

INTC 0.73221

JNJ -0.36912

JPM 0.17326

KFT 0.04215

KO 0.68628

MCD 1.10172

MMM 0.02589

MRK 0.19970

MSFT -0.21649

PFE -0.47107

PG -0.39815

T 0.10126

TRV 0.06123

UTX 0.21041

VZ 0.22911

VMT -0.05993

XOM -0.51726

Sharpe Ratio= (E (rp)-rf/ ??)

Sharpe Ratio= (0.25%*0.004%)/2.25%

= 0.107733

Finance

  1. The weights of long only portfolio that achieves a maximum possible Sharpe-ratio.

Portfolio Weights

IBM 0.150647

KO 0.174989

MCD 0.674364

The maximum possible Sharpe Ratio=(0.08%-0.004%)/1.23%

=0.061788

Finance 1

  1. Using the same risk free rate and long-only constraint that no one asset is allowed a weight greater than 0.5.

Portfolio Weights

IBM 0.222421

KO 0.27759

Sharpe = (0.07%-0.004%)/1.18%

=0.05641

Finance 2

  1. Calculate the weights of the minimum variance portfolio. Given that weights sum to 0, target return is 0.10% (daily, minimum allowed weight is -0.5, maximum allowed weight being 0.5.

Portfolio Weights

AA -0.08254

AXP -0.00208

BA -0.12648

BAC -0.02897

CAT 0.189952

CSCO -0.0493

CVX 0.3068

DD 0.013661

DIS 0.101756

GE -0.18679

HD -0.17729

HPQ 0.040953

IBM 0.263488

INTC -0.15175

JNJ -0.3713

JPM 0.100781

KFT -0.0506

KO 0.267267

MCD 0.445152

MMM -0.04568

MRK 0.121844

MSFT -0.10309

PFE -0.23804

PG -0.26475

T 0.043655

TRV 0.060336

UTV 0.124984

VZ 0.103219

WMT -0.08578

XOM -0.21942

Sharpe Ratio= (0.1%-0.004%)/1.01%

=0.09505

  1. Minimal Variance Portfolio

Stocks Weights

AA 0.15617

AXP 0.00719

BA -0.06781

BAC 0.00820

CAT -0.07367

CSCO 0.05863

CVX 0.10021

DD -0.01109

DIS 0.11235

GE -0.01227

HD -0.04547

HPQ 0.30073

IBM 0.00043

INTC -0.02227

JNJ -0.00099

JPM 0.02357

KFT 0.05342

KO 0.04207

MCD 0.32338

MMM 0.02158

Market Portfolio

Stocks Weight

AA 1.75843

AXP -0.50437

BA -1.16132

BAC -0.15525

CAT 1.08630

CSCO 1.21383

CVX -1.37636

DD -0.23015

DIS 1.58180

GE -0.01411

HD 0.51258

HPQ -0.49685

IBM -0.20933

INTC -0.43754

JNJ 0.08364

JPM 0.32938

KFT -0.23471

KO 0.20482

MCD -0.94326

MMM -0.00753

Market Portfolio

Sharpe Ratio= (7.18%-0.10%)/20.59%

= 0.34386

Minimum Variance Portfolio

Sharpe Ratio= (0.29%-0.10%)/3.35

=0.05672