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APPLIED PROBLEMS IN CORPORATE FINANCE II

Instructions:

This is an individual assignment. You must submit your own personal work.

Attempting to submit and take credit for the work of others is plagiarism. This assignment is due no later than

WA: Tuesday, February 27, 2018 at 10:00 am.

WB: Monday, February 26, 2018 at 1:00 pm.

WC: Tuesday, February 27, 2018 at 4:00 pm.

Late submissions will not be graded.

You must submit your assignment electronically (one PDF file and one Excel File) via the assignment Dropbox folder on D2L. Format the title of your files as follows: BUSI2039W[place A, B, or C here depending on your section]_HW1_Your Last Name_Your First Name e.g. BUSI2039WA_HW1_Arzandeh_Mehdi.

Modern Portfolio Theory Skills (15%)

Business2039 CORPORATE FINANCE

Visit Yahoo Finance Canada website: https://ca.finance.yahoo.com (last accessed on Feb. 10, 18.)

On the website, search for the stocks of BlackBerry Limited (BB.TO), Bitcoin CAD (BTC-CAD), Suncor Energy Inc. (SU.TO), and Bombardier Inc. (BBD-B.TO).

1. Click on each stock name. On the webpage for each stock, download the historical monthly data for the last year. Save all stocks’ data in one Excel file with multiple sheets – one sheet for each stock. Name the sheets properly.

1. Calculate the monthly holding period return for each month for each stock. (Use properly labeled and titled columns; use adjusted closing price when calculating holding period returns).

1. Calculate the arithmetic mean, and standard deviation for each stock HPRs.

1. In the same Excel file, create a new sheet for each pair of stocks e.g. BB.TO-SU.TO. Hint: this

will add   ^{(  −1)} new sheets to your file where is the number of stocks. In each new sheet,generate a column for date, a column for the first stock HPRs, and a column for the second stock HPRs. Using Excel, calculate the correlation coefficient for each pair of stocks returns.

1. Assume arithmetic mean found for each stock is a good approximation of its expected return. For each pair, construct different portfolios by assigning different weights to the two stocks in the portfolio. Start with a one-hundred-percent weight for the stock with lower expected return and zero percent for the stock with higher expected return in each pair. Next, lower the weight of the former and increase the weight of the latter by one-percent increments. Finally, generate a new column and calculate each portfolio’s expected return.

1. In a new column, calculate the portfolios’ standard deviations. Use the same weights as in part e.

1. For each pair of stocks in your Excel file, draw a graph with portfolio expected return on the y-axis and weight of the stock with higher expected return on the x-axis. Properly label your axes.

1. For each pair of stocks in you Excel file, draw a graph with portfolio standard deviation on the y-axis and weight of the stock with higher expected return on the x-axis. Properly label your axes.

1. For each pair of stocks in you Excel file, draw the efficient frontier, that is draw a graph with portfolio expected return on the y-axis and portfolio standard deviation on the x-axis. Properly label your axes.

1. On a new sheet in your Excel file, assign weights of zero percent through one hundred percent (one-percent increments) to the stock with highest expected return of all four. Next, create three new columns and assign different weights to your other three stocks. The weights of the other three stocks are arbitrary but note that the weights must add up to one hundred percent for each portfolio. Next, calculate expected return and standard deviation for your 101 portfolios, in two new columns. Finally, graph your portfolios’ expected return against standard deviation. Hint: you will have a graph with 101 dots where expected return is on the y-axis and standard deviation is on the x-axis. On your graph, choose a different colour for the dots that are dominant.

1. Click on each stock name in part a., again. On the webpage for each stock, you find a profile and several related articles. Choose at least two articles and write a one-page summery for each stock. In your summaries, you should start with a short description that you write by summarizing the stock portfolio followed by events and their impacts on the stock value discussed or implied in the articles. Conclude your report by a section of your take on the stocks’ future performance based on what is discussed in your summaries. Finish your report by adding all references used. Note: your report must be typed and must look professional. Marks will be deducted for sloppiness. You can get help from the internet in formatting your manuscript, such as:
2. Suppose you have $10,000 to invest and the stocks in this assignment are your only options to choose from. Based on your answers to parts a. through k., construct a portfolio using your

$10,000. Calculate the expected return and standard deviation for your portfolio and explain the reasons for your choice. This part must be added to your report conclusion section in part k.

Bonus Mark (up to 5%)

Keep an eye on your $10,000 investment. Sell all the stocks you bought in this assignment on March 30^th at the adjusted closing prices on https://ca.finance.yahoo.com, calculate your realized return and bring it with you to the last class. The person who makes the highest profit in each section receives a gold medal and 5% bonus points towards their overall grade. The rest of the class will receive a portion of the 5% bonus mark equal to the ratio of their profit to the profit of the class champion. If your return turns out non-positive, you receive zero bonus point. Invest wisely!

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