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FBE 506 Quantitative Methods in Finance

Assignment #5

1- Using monthly data for the period January 2014 to present compare the following finance ratios for JPM and Face Book:

a. CV (coefficient of variation).

b. Sharpe ratio

c.   Sortino ratio

d.   Traynor ratio

What do those ratios imply on investment on the two securities.

2- JP Morgan or Face book: Download monthly data for JPM and Face book (FB) from January 2, 2018 to today, using adjusted closing prices.  Which one is a better investment?

3. A portfolio’s return is normally distributed with mean 5% and standard deviation of 2.2%, both expressed in annual terms.  Calculate 5% VaR as a percentage of the mean return when the risk horizon is one year, six months, one month, and one day.

4- Using the monthly data for AAPL, FB, and JPM for the period January 2018 to present calculate the parameters of the Markowitz portfolio model.

5. Variance Covariance Matrix and Asset Allocation Model (Markowitz Portfolio Model): Suppose the variance covariance matrix for two stocks is given as:

The expected rate of returns on Stocks 1 and 2 are 10% and 12%, respectively.  The average return to risk-free treasury is 5%. Given that the objective of the investor is a minimum-risk portfolio, find the optimum weights of each stock in the portfolio.