Question: 1. Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the
1. Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest?
2. Suppose Sharpes position has been 99% of equity funds invested in the S&P 500 and either 1% in Reynolds or 1% in Hasbro. Estimate the resulting portfolio position. How does each stock affect the variability of the equity investment? How does this relate to your answer in question 1 above?
3. Compute the beta for each stock. What does beta measure? How does this relate to your previous answers?
4. How might the expected return of each stock relate to its riskiness?
5. What is the required rate of return for each stock (CAPM)? Explain the number and put it into context?
6. In what stock(s) (if any) should Sharpe Invest? Make a recommendation of what you would do if you were Alex Sharpe. Would you try something different?
| Date | S&P 500 | REYNOLDS | HASBRO |
| 2-Jan | -1.70% | 6.13% | 1.66% |
| 2-Feb | -2.31% | 9.87% | -13.27% |
| 2-Mar | 4.37% | -1.37% | 10.55% |
| 2-Apr | -5.06% | 6.87% | 1.01% |
| 2-May | -1.19% | 2.17% | -4.26% |
| 2-Jun | -7.15% | -23.97% | -11.37% |
| 2-Jul | -8.23% | 1.64% | -9.66% |
| 2-Aug | 0.64% | 7.71% | 7.35% |
| 2-Sep | -10.14% | -31.48% | -15.36% |
| 2-Oct | 7.35% | 0.57% | -8.18% |
| 2-Nov | 5.96% | -4.81% | 25.44% |
| 2-Dec | -5.50% | 9.09% | -9.91% |
| 3-Jan | -2.46% | 0.59% | 3.90% |
| 3-Feb | -1.72% | -5.78% | 0.92% |
| 3-Mar | 0.89% | -19.17% | 14.70% |
| 3-Apr | 8.12% | -12.68% | 15.19% |
| 3-May | 6.18% | 21.02% | 0.06% |
| 3-Jun | 1.48% | 9.15% | 9.24% |
| 3-Jul | 2.18% | -4.54% | 7.78% |
| 3-Aug | 2.34% | -3.86% | -1.86% |
| 3-Sep | -1.06% | 15.78% | 0.97% |
| 3-Oct | 5.89% | 21.47% | 16.70% |
| 3-Nov | 1.51% | 14.93% | 1.42% |
| 3-Dec | 4.39% | 5.34% | -3.75% |
| 4-Jan | 2.20% | 1.56% | -7.19% |
| 4-Feb | 1.40% | 4.52% | 10.73% |
| 4-Mar | -1.20% | -1.99% | -0.55% |
| 4-Apr | -2.56% | 7.06% | -13.15% |
| 4-May | 1.24% | -13.23% | 4.08% |
| 4-Jun | 2.00% | 20.27% | -3.36% |
| 4-Jul | -3.88% | 6.45% | -4.37% |
| 4-Aug | 0.11% | 4.93% | 1.98% |
| 4-Sep | 1.91% | -9.88% | 1.46% |
| 4-Oct | 1.66% | 1.21% | -5.90% |
| 4-Nov | 4.43% | 9.83% | 7.57% |
| 4-Dec | 3.34% | 3.93% | 1.84% |
| 5-Jan | -2.74% | 2.32% | 1.14% |
| 5-Feb | 2.09% | 1.90% | 7.76% |
| 5-Mar | -1.86% | -1.66% | -3.17% |
| 5-Apr | -2.66% | -3.25% | -7.48% |
| 5-May | 3.59% | 6.34% | 6.66% |
| 5-Jun | 0.99% | -4.96% | 3.02% |
| 5-Jul | 4.22% | 5.72% | 5.53% |
| 5-Aug | -0.78% | 0.76% | -5.65% |
| 5-Sep | 0.93% | -1.10% | -5.07% |
| 5-Oct | -2.19% | 2.38% | -4.12% |
| 5-Nov | 3.82% | 4.73% | 8.39% |
| 5-Dec | 0.19% | 7.09% | -1.18% |
| 6-Jan | 3.90% | 6.08% | 5.05% |
| 6-Feb | -0.36% | 4.96% | -4.29% |
| 6-Mar | 1.76% | -0.61% | 3.99% |
| 6-Apr | 1.15% | 3.93% | -6.59% |
| 6-May | -3.30% | 0.26% | -5.94% |
| 6-Jun | -0.19% | 4.88% | -2.32% |
| 6-Jul | -0.28% | 9.96% | 3.26% |
| 6-Aug | 2.30% | 2.65% | 8.56% |
| 6-Sep | 1.81% | -4.76% | 12.07% |
| 6-Oct | 3.60% | 1.92% | 13.93% |
| 6-Nov | 2.13% | 1.71% | 3.20% |
| 6-Dec | 0.91% | 1.91% | 1.87% |
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