Module 7 Problem Set #3

Learning Goal: I’m working on a management question and need an explanation and answer to help me learn.

Please use the provided Answer sheet for your submission:

Problem Set 3 Answer Sheet Summer 1 2022.xlsx

Please complete this problem set #3 More on Covariance, Correlation, Stdev, variance, and firm-specific risk, and upload your excel file answer sheet provided.

MBA 647-module7-Problem Set 3 Summer 1 2022.docx

See attached doc file for full assignment

Problem Set #3: Summer I 2021

Q1: Index Models:

Download 61 months (November 2015 to December 2020) of monthly data for the S&P 500 index (symbol = ^GSPC, or SPY). Download 61 months (November 2015 to December 2020) of price data for one of your 5 stocks (stock #1) and 61 months (November 2015 to December 2020) of price data a second stock (stock #2) in your 5 stocks. Download 60 months (December 2015 to December 2020) of the 13-week T-bill rate (symbol = ^IRX).

Be sure to use end-of-month data! Construct the following on a spreadsheet:

  1. Calculate 60 months of returns for the S&P 500 index, stock #1 of your 5 stocks, and stock #2. (Please compute simple monthly returns not continuously compounded returns.) Use November 2015 to December 2020. Note this means you need price data for November 2014. On the answer sheet report the average monthly returns for the S&P 500 index, stock 1, and stock 2, as well as the average monthly risk-free rate.
  1. Calculate excess returns for the S&P 500 index, stock 1, and stock 2. Note you must divide the annualized risk-free rate (^IRX) by 1200 to approximate the monthly rate in decimal form. On the answer sheet report the average monthly excess returns for the S&P 500 index, stock 1, and stock 2.

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