MA6040 – Group Coursework 2014/15.
This assessment carries 30% of the module mark
For this coursework, your task is to construct a portfolio of six assets (i.e. shares of six companies selected from Nasdaq-100 index) and perform a series of calculations on an Excel spreadsheet (or other suitable software) as instructed over the page.
Each group will consist of up to three members who can expect to receive equal marks for this work, unless, the contribution from a member is deemed as insufficient by other members. In such cases, an interview with all members will be conducted and the marks for individual members may be adjusted accordingly.
The group as a whole will submit one report (PDF file) with each part of the task clearly identified. The report should have an appropriate coversheet with names and ID numbers of all members clearly indicated.
All Excel worksheets and other computer printouts should have clear explanation of methods and formulae used. There is no need to include the entire data sets used in the coursework but you may append a few sample pages of the data.
Excessive and unnecessary explanation of the theory of the Capital Asset Pricing Model should be avoided.
The completed coursework must be submitted online (via Weblearn) by
3:00 pm Tuesday 14 April 2015
(i) Visit the Nasdaq-100 page of the Yahoo finance website and download the historical prices for the components that are allocated to you from this index. The historical prices should go back a sufficient period in time from the date that you obtain the data in order to yield positive average returns. Give a brief description of the company and the type of business they are in.
Calculate the expected return and the volatility for each component as well as the correlations between the asset returns.
(ii) Set up a spreadsheet with a format similar to the example used in class, showing the quantities that you obtained in part (i). Assuming that short selling is permitted, use an appropriate Solver function to determine the portfolio risk and the percentage of investment in each asset in your portfolio for a target return of your choice.
Repeat this process for different portfolio target returns and hence, draw the efficient frontier curve.
(iii) Repeat part (ii) but this time with an additional constraint that does not allow short selling of an asset. Briefly comment on the effects of this additional constraint on the results.
(iv) Calculate the Sharpe ratios for a range of expected portfolio returns and volatilities that you calculated in parts (ii) and (iii), and by using a risk free investment guaranteeing a return of 2%, determine the equation of the Capital Market Line. Discuss the economic significance of the Capital market Line.
(v) Using linear regression analysis, calculate the beta for each asset in the portfolio and discuss the significance of this quantity.
(vi) Give a summary of your findings in a non-technical language that could inform a potential investor choosing the best efficient portfolio and discuss the implication of other relevant performance measurements.
Up to 5 marks will be awarded for clarity of presentation as described in the instructions.