Risk and Return – Daniel’s Portfolio Case
Question Description
Assignment: Provide a quick rundown of Daniel’s situation. Discuss strategies and goals of howcan he “add value”. Think about issues such as efficiency, risk-return, and how to add value.Include a recommendation of a portfolio make-up (weights, or even suggestions of other stocks).
1. Estimate and compare the risk and return of each stock and the S&P 500 (i.e. annualstandard deviation over the past five years). Which stock appears to be riskiest? Howmight the expected return of each stock relate to its riskiness?
2. If the portfolio was equally weighted (20% in all stocks and ETF) what is the resultingportfolio position (risk and return)? How does the variability of each stock affect theportfolio? How does this relate to your answer in question 1 above? How would theportfolio risk and return change if 50% of it is in SBUX, 20% in SPY, and 10% in eachof the remainder securities.3. Compute the “beta” for each stock. What does beta measure? (Use SPY as themeasurement of the Market). How does this relate to your previous answers? What is theportfolio beta (for the equally weighed)? What does it indicate?
4. What is the required rate of return for each stock (CAPM)? What is the CAPM for the(equally-weighed) portfolio? Explain the number and put it into context? (Use theaverage Risk-Free rate given below).
5. In what stock(s) (if any) should Daniel invest in? Make a recommendation of what youwould do if you were Daniel. What portfolio construction would you recommend? Wouldyou try something different?
Write this report in sections, make sure each section has a heading. The first section: Riskand Return of each individual stock (Q. 1). Second section: portfolio risk and return (Q. 2 &3). Section 3: Expected Return (Q. 4). And finally, Section 4: Recommendation (Q. 5).
Please see attached PDF and excel file
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