all requirements are in those files i have uploaded
Microsoft Word - 25624 - assignment_outline.docx Finance Discipline Group UTS Business School FINANCIAL METRICS FOR DECISION MAKING – SPRING 2020 ASSIGNMENT General Instructions and Information § This assignment accounts for 40% of students’ final grade for 25624 Financial Metrics for Decision Making. § The assignment is to be undertaken individually. § The assignment is due on Friday the 16th of October 2020 (Week 10) by 5pm. § The assignment must be submitted via UTSOnline. You’ll need to provide a written report and an Excel spreadsheet: • The written report must be self-contained and formatted as a PDF file. • Excel files will also be examined and will constitute 20% of the value of the assignment. The Excel file should include all calculations. § The scope of this assignment is limited to [5] pages not including appendices and cover sheet. Use standard fonts (think Calibri, Times New Roman, Arial) and standard font sizes. There is no specific word count. § You are encouraged to use figures and tables when reporting your results. § The file names, for both the report and the Excel spreadsheet, will take the form: “Name – Student number”. For example, if your name is Jane Doe and your student number is 12345, then your file name will be “Jane Doe - 12345”. Please don’t write the words “name”, “student number” or anything else in the file name. § All assignment-related questions should be posted to the Discussion Board on UTSOnline. Marking § This assessment will be graded on the quality of both, the written report and the quantitative analysis in Excel. § Marks will be awarded 70% for content and analysis, and 30% for effectiveness of communication and presentation. § Late submissions will be allocated a mark of zero with no exceptions unless via special consideration filing. Files In the Assignment folder on UTSOnline, you’ll find the following files: § Cover Sheet: is the cover sheet you’ll need to fill in, sign, and submit along with your written report. § Data: this Excel spreadsheet contains the following worksheets: • Cover: you’ll need provide your student details and the ‘Symbol’ for each randomly selected stock (see Part 1) here. • S&P500 List: contains the ‘Symbol’ and the ‘Name’ of US stocks included in the S&P500 index. • Returns: contains daily returns for the sample of US stocks in S&P500 List for the period 3 Mar 2020 – 28 Aug 2020. In addition, this file also contains historical data for the S&P500 index (the market portfolio) and US Treasury Bond Yields (the risk-free rate). • US Covid Cases: contains data on new Covid-19 cases in the US, and their average 7-day moving average percentage change, for the period 3 Mar 2020 – 28 Aug 2020 • Part 1 to Part 5: use these worksheets as templates for the calculations you’ll have to perform, and submit, as part of this assignment. Instructions Part 1 – Optimisation (20 marks) § Randomly select 10 stocks out of the sample of US stocks in S&P500 List. Ensure you identify how you randomly selected the stocks. • Note: include the ‘Symbol’ for each of the selected stocks in the Cover worksheet. § For the sample selected, form an equally-weighted portfolio (Portfolio A) and estimate daily returns for the period 3 Mar 2020 – 28 Aug 2020 § For the sample selected, use the Excel add-in Solver to form a portfolio (Portfolio B) which maximises the Sharpe Ratio for the period 3 Mar 2020 – 28 Aug 2020, under the constraint that the total portfolio weight is one. Report the portfolio weights and comment on the feasibility of investing according to the weights obtained. Part 2 – Descriptive Analysis (20 marks) § Report daily and annualised descriptive statistics which summarise the historical return distribution for both, Portfolio A and Portfolio B, as well as any metrics you consider useful to depict the historical performance of both portfolios. Comment on your findings. Hints: - You can report both, the pre and post-covid performance of the portfolios and comment on the impact the pandemic has had on your selected stocks and/or the industries they are in. - The use of figures and charts as a visual summary of the data is highly encouraged. Part 3 – Hypothesis Testing (20 marks) § Plot histograms to contrast the return distribution of: 1) Portfolio A vs S&P500, and 2) Portfolio B vs S&P500. Comment on your findings. § At 5% significance level, is the mean daily return of any of these two portfolios higher than the mean return of the S&P 500 index? Comment on your findings. Hints: - Start by properly establishing both the Null and Alternative hypotheses. - Report the type of test you would use to answer this question. - Present and interpret your results in terms of p-values. Part 4 – Simple Linear Regression (20 marks) § Estimate historical excess returns for both, Portfolio A and Portfolio B, as well as the S&P500 index. § Create scatterplots to depict the historical returns of: 1) Portfolio A vs S&P500, and 2) Portfolio B vs S&P500. Comment on the relationships observed. § Using the S&P500 index as the market portfolio, what is the market beta of both, Portfolio A and Portfolio B. Which portfolio is more exposed to Systematic Risk? § Based on these betas, what would be the expected change in the average excess return of both, Portfolio A and Portfolio B, to a 1% increase in the average excess return of the market portfolio? Part 5 – Multivariate Linear Regression (20 marks) § Estimate two separate regressions, one for Portfolio A and one for Portfolio B, in which your dependent variable is the daily excess returns for each portfolio, and your independent variable is the daily 7-day moving average percentage change in new Covid-19 cases in the US. § Interpret your findings establishing: a) whether for each Portfolio the regressor is statistically significant at a 5% significance level; and b) the effect a 1% change in the regressor has in the average excess returns of each portfolio. • Do you think there is an underlying economic relationship between the daily percentage change in new Covid-19 cases and the returns of Portfolio A and Portfolio B? If so, what can explain that relationship? Hints: - Discuss the impact the pandemic has had on your selected stocks and/or the industries they are in. § Re-estimate the two regressions above, and this time include the following independent variables (regressors): 1. The excess returns for the S&P500 index, and 2. The daily 7-day moving average percentage change in new Covid-19 cases § After including this additional regressor, what can you say about the relationship between the daily percentage change in new Covid-19 cases and the returns of Portfolio A and Portfolio B? Microsoft Word - 25624_assignment_cover_sheet.docx Finance Discipline Group UTS Business School FINANCIAL METRICS FOR DECISION MAKING – SPRING 2020 ASSIGNMENT COVER SHEET 1. Name: _______________________________ 2. Student No.: ________________________ Declaration I have carefully read, understood, and have taken into account all the requirements and guidelines for this assignment. I affirm that this assignment is my own work; that it has not been previously submitted for assessment; that all material which is quoted is accurately indicated as such; and that I have acknowledged all sources used fully and accurately according to requirements. I am fully aware that failure to comply with these requirements is a form of cheating and could result in disciplinary action in accordance with UTS Student Rules Section 16 – Student misconduct and appeals. Signature(s)/ Date: ..................................................................................................................................