This Is Page 161 You Have 100000 To Invest In Ten Stocks

This Is Page 161you Have 100000 To Invest In Ten Stocks 10000 In

This assignment involves selecting a total of ten stocks to invest $100,000, with $10,000 allocated to each stock, and tracking their performance over nine weeks. The key tasks include choosing five stocks known or used by the student, and five stocks provided as examples, then establishing a watch account through an online source. The student will set up a spreadsheet to monitor weekly closing prices, number of shares, and total portfolio value, updating data weekly. The assignment emphasizes analyzing systematic risk via beta coefficients, comparing measures from different sources, and assessing the portfolio’s responsiveness to market movements, as well as evaluating individual and overall performance since the start. The student is expected to interpret beta coefficients, measure portfolio performance, and compare it with a benchmark index like the S&P 500.

Paper For Above instruction

The investment landscape requires understanding both the strategic selection of stocks and the measurement of investment risk. This paper discusses the process of constructing a diversified stock portfolio with $100,000, tracking its performance over nine weeks, and analyzing its risk and return characteristics. The methodology involves selecting ten stocks, five of which are familiar or personally used, while the other five are provided as benchmarks. The objective is to monitor weekly prices, calculate returns, assess beta coefficients, and compare risk measures from different data sources—a comprehensive approach to understanding systematic risk and portfolio management.

Initially, the student selects five stocks based on familiarity and personal investment or usage experience; examples include Coca-Cola (KO), ExxonMobil (XOM), Merck (MRK), Tupperware (TUP), and Washington Real Estate Investment Trust (WRE). These selections are intended to reflect companies within distinct sectors to diversify risk. The remaining five stocks are chosen independently by the student, ensuring diversity and engagement. Setting up a watch account through credible financial websites such as Yahoo! Finance, MarketWatch, or Morningstar allows real-time tracking of stock prices, including dividend reinvestment, weekly closing prices, and calculation of the number of shares held.

The spreadsheet framework is critical for organizations of data. Columns include stock name, sector, beta (measure of systematic risk), initial shares purchased, weekly closing prices, and total portfolio value. The initial allocation involves purchasing equal shares of each stock with $10,000, leading to the calculation of the initial number of shares based on initial prices. Weekly updates on closing prices enable tracking gains or losses, and dividends are reinvested to buy additional shares, reflecting realistic investment scenarios. The weekly data collection continues for nine weeks, culminating in a comprehensive dataset.

Through data analysis, the student calculates the beta coefficient for each stock, which indicates the degree to which the stock's returns move relative to the market. An overall portfolio beta is then derived by weighted averaging of individual betas, providing insight into the portfolio's sensitivity to market fluctuations. Comparing the beta coefficients obtained internally with those from external sources, such as Reuters or Yahoo! Finance, reveals potential discrepancies and the implications for risk assessment accuracy. Differences in rankings of risk levels highlight the variability in systematic risk measures due to data sources or estimation methods.

Performance analysis involves evaluating the current value of the portfolio, calculating the percentage change since inception, and comparing performance metrics with broader market indices like the S&P 500. The benchmark index serves as a standard to assess whether the portfolio is outperforming or underperforming the market. The relationship between the portfolio's movements and the market index allows assessment of diversification effectiveness and risk management strategies. Moreover, analyzing individual stock returns provides insight into the contributions of various assets to overall portfolio performance.

The findings typically reveal that portfolios with moderate beta levels tend to follow market trends, reducing unsystematic risk but remaining exposed to systematic risk. The comparison of risk measures from different sources underscores the importance of multiple data points to accurately assess systematic risk. The comprehensive weekly tracking and analysis enable students to grasp the dynamics of stock movements, risk management, and strategic investment decision-making, providing practical insights into building resilient investment portfolios.

References

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  • Bodie, Z., Kane, A., & Marcus, A. J. (2014). Investments (10th ed.). McGraw-Hill Education.
  • Lintner, J. (1965). The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets. The Review of Economics and Statistics, 47(1), 13-37.
  • Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. The Journal of Finance, 19(3), 425-442.
  • Ross, S. A. (1976). The Arbitrage Theory of Capital Asset Pricing. Journal of Economic Theory, 13(3), 341-360.
  • Morningstar. (2023). The Fundamentals of Portfolio Beta. Retrieved from https://www.morningstar.com
  • Yahoo! Finance. (2023). Stock Data and Beta Coefficients. Retrieved from https://finance.yahoo.com
  • Reuter, M. (2022). Source-based Variations in Risk Metrics: A Comparative Analysis. Journal of Financial Data Science, 4(2), 45-58.
  • Investopedia. (2023). Understanding Beta and Systematic Risk. Retrieved from https://www.investopedia.com
  • MarketWatch. (2023). Weekly Portfolio Tracking and Analysis. Retrieved from https://www.marketwatch.com

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