Paper Portfolio

Topics: Capital asset pricing model, Investment, Modern portfolio theory Pages: 3 (846 words) Published: February 10, 2012
PaperThis assignment needs to consist of a portfolio analysis in a Microsoft Word document that is not to exceed three pages. You must also include your portfolio analysis in either Word or Excel. You must show how you calculated the answers. 1. Select four stocks from,, or One should be a clothing manufacturer, one should be a retailer, one should be an automobile manufacturer, and one should be a restaurant or food producer. 2. Obtain the closing price, the change in price from the previous day, and the beta. 3. Calculate the return on holding the stock for a day (this should be the change in price over the closing price). 4. Calculate a portfolio return with weights of 0.25 for each stock. 5. Calculate a weighted beta with weights of 0.25 for each stock. 6. Write up the implications of the portfolio return and risk with respect to what you learned about beta and the CAPM in 2-3 pages.

Market Risk:
Market risk is the risk that reflects the effect of the project on a well-diversified stock portfolio. This is the risk which depends on the variance and correlation of the project or a particular stock with the stock market. Portfolio risk is the risk that one still bears after achieving full diversification, Portfolio risk is often called systematic or market risk as well. The market risk of a stock or a project is measured by the market beta. The influence of a systematic risk like inflation on a stock by using the beta coefficient. The beta coefficient, ß, tells us the response of the stock's return to a systematic risk. Beta measured the responsiveness of a security's return to a specific risk factor, the return on the market portfolio. The magnitude of the beta describes how great an impact a systematic risk has on a stock's returns. A beta of +1 indicates that the stocks return rises and falls one for one with the systematic factor. Thus, every stock will have a beta associated with each...
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