Excess Return of RAMSAY HEALTH CARE, business and finance homework help

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Pick three stocks of your choice (Select stocks listed in the USA
exchange traded market), preferably from different industry groups. Go
to the recommended websites or any other website that offers historical
stock price data or to published information sources such as Yahoo
Finance, or Google finance or any other reliable source of financial
information. Extract weekly (for example, every Friday) closing share
prices for the most recent
28 weeks. Also extract the values of the stock market index,
(represented by S&P500 index or All Ordinaries in US), on a weekly
basis over the same time period.


Part 1 (30 marks)

The rate of return in each week for each stock and for the stock market
index for the 27 weekly periods. Calculate the discrete rate of return
as well as the continuously compounded rate of return. Calculate the
arithmetic mean return and the geometric mean return of each stock for
the entire period. Use only the discrete returns for your calculations
and for the calculations in the questions that follow. (10 marks)

The variance of returns for each stock and the index and the
covariances of returns between each pair of stocks, the covariance
between each stock and the stock market index, and the corresponding
correlation coefficients. (5 marks)

(c) Compare your results in
(a) and (b) for each stock and the stock market index and comment on the
risk return characteristics and performance of each of your stocks and
the index. Illustrate with tables/charts as appropriate. Comment on the
results, relating to what you have learnt in this course. Relate the
risk return pattern and the performance of the market index and your
stocks to relevant events that took place during this period. Draw on
economic, political, industry and company related events that took place
over this period that may have impacted on the performance of your
stocks and the market index. Give bibliographic references to the
sources of your information. (15 marks)

Part 2 (10 marks)

(a) Based on the discrete
returns calculations in Part 1, compute the weekly rate of return and
the variance of an equally weighted portfolio formed from the three
stocks. Make use of your knowledge of matrix algebra in your calculations. (5 marks)

Examine and compare the pattern of the returns of your portfolio with
those of the individual stocks, and the stock index. Compare the
corresponding variances. Comment on your observations, relating to
material learnt in this course. (5 marks)

Part 3 (45 marks)

Extract for each week, the yield of the 26-week Treasury bill (or
equivalently the 90 day or 180-day bank accepted bill from the financial
media (i.e. Federal Reserve Bank: http://www.federalreserve.gov/default.htm)
over your sample period. (Remember sometimes reported yields are
usually annualised figures. Convert the yields to weekly numbers. Use
these as a proxy for the risk free rate).

(5 marks)

Estimate the Security Characteristic Line (SCL) for each of your stocks
and the equal weighted portfolio, based on the ‘Market Model’, using
excess returns (discrete returns less the risk free rate), using Excel
regression analysis functions. Show your results graphically. From your
results, compute the Beta and the Jensen’s Alpha of each stock and the
portfolio. (15 marks)

(c) Calculate the total risk (the return
variance) of each stock and the portfolio. Partition the total risk to
their respective systematic and unsystematic risk components. (10 marks)

Based on your observations and results in parts (b) and (c) above,
comment on each of your stock’s and portfolio’s performance, and on
their risk characteristics, comparing and contrasting the magnitude and
the proportions of their systematic and unsystematic risk components.
What further insights can you gain on the characteristics and behaviour
of your stocks and portfolio compared to the analysis and observations
you made in Part 1 (c) and Part 2 (b)? (15 marks)


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