This exercise considers daily percentage changes in stock of Disney during 2010 and 2011. Use the same data as in Exercise 53.
(a) Describe the shape and any key features of the histogram.
(b) Find the mean and standard deviation of the percentage changes. Use the properties of these data to define a random variable that is the percentage change in Disney stock in a future day.
(c) If the interest cost for a daily investment in Disney is 2 basis points (i.e., 0.02% per day), find the Sharpe ratio for a daily investment of $1,000 in this stock.
(d) Does the Sharpe ratio indicate whether the investor is better off with more money or less money invested in Disney? That is, can an investor use the Sharpe ratio to decide whether to invest $1,000, $5,000, or $10,000 in Disney?
(e) How does the Sharpe ratio for Disney compare to that for Microsoft during these two years
(f) If an investor compares the Sharpe ratio for Disney to that for Microsoft to decide which investment is better, then what assumptions about future returns are being made?

  • CreatedJuly 14, 2015
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