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See attached documentMicrosoft Word - FNCE3000_HW FNCE	3000	—	Group	Project	1	(hard	copy	due	in	class,	Thurs.	10/19)	 ‐‐	1	of	4	‐‐	 	 	 If	you	have	to	make	any	additional	assumptions,	be	sure	to	state	them	upfront.	Hand	in	all	 relevant	information/charts/calculations	used	to	derive	your	answers	so	that	I	can	quickly	 follow	your	thought	process	and	where	your	numbers	are	coming	from.		 	 Be	sure	to	include	all	of	your	names	on	the	first	page	of	your	homework	submission.	 	 	 	 	 Source:	http://www.wellsfargo.com/mortgage/rates/	[rates	as	of:	September	14,	2017]	 	 ^^	Use	the	information	provided	to	answer	the	questions	on	the	following	page.		 NOTE:	the	above	quotes	denote	annual	percentage	rates	(APR),	compounded	monthly.		 	 	 	 	 FNCE	3000	—	Group	Project	1	(hard	copy	due	in	class,	Thurs.	10/19)	 ‐‐	2	of	4	‐‐	 	 	 You	want	to	buy	a	$1,000,000	house.	Suppose	you	make	a	20%	down	payment	today,	and	 you	finance	the	rest	of	your	purchase	with	a	30‐year	fixed	rate	jumbo	mortgage.	 	 1) What	will	be	your	monthly	mortgage	payments?	 	 2) How	much	of	your	first	month’s	payment	goes	toward	paying	off	interest?	How	much	 goes	toward	paying	off	the	loan	balance?	 	 3) How	much	do	you	still	owe	after	5	years	(i.e.,	just	after	your	60th	monthly	payment)?		 	 4) How	long	will	it	take	you	to	reduce	your	loan	balance	by	half	(i.e.,	≤	$400,000)?	 	 5) Suppose	in	20	years	(just	after	your	240th	monthly	payment),	you	decide	to	refinance	 at	 a	 10‐year	 fixed	 rate	 of	 3.200%.	 What	 will	 be	 your	 new	 monthly	 mortgage	 payments?	 	 	 	 	 	 	 	 	 FNCE	3000	—	Group	Project	1	(hard	copy	due	in	class,	Thurs.	10/19)	 ‐‐	3	of	4	‐‐	 	 	 	 	 	 Source:	finance.yahoo.com	[snapshots	taken	on:	September	14,	2017]	 	 	 Provide	the	following	analyses	pertaining	to	a	portfolio	comprised	of	common	stock	issued	 by	Microsoft	 Corporation	 and	 common	 stock	 issued	by	The	Coca‐Cola	Company	 (you	will	 need	 additional	 data	 provided	 on	 finance.yahoo.com—in	 the	 “Get	 Quotes”	 box,	 type	 in	 “MSFT”	 and	 “KO”).	Be	 sure	 to	 state	any	additional	 assumptions	upfront,	 and	 to	print	out,	 highlight,	and	hand	in	all	relevant	information	that	you	use	to	calculate	your	answers	so	that	 I	can	quickly	follow	where	your	numbers	are	coming	from.	 FNCE	3000	—	Group	Project	1	(hard	copy	due	in	class,	Thurs.	10/19)	 ‐‐	4	of	4	‐‐	 	 	 In	your	calculations	below,	assume	that	the	annual	risk‐free	rate	is	rf=2%.	 	 	 Part	1:	Estimate	the	Market	Risk	Premium	 Estimate	 the	 (annual)	 market	 risk	 premium	 using	 the	 five‐year	 time	 series	 of	 monthly	 pricing	 data	 from	 October	 2012	 through	 October	 2017	 (inclusive).	 Use	 the	 S&P500	 Composite	Index	as	your	proxy	for	the	“market”	(in	the	“Get	Quotes”	box	type	“^GSPC”).	 	 The	monthly	closing	prices	are	provided	under	 the	 “historical	prices”	 tab.	From	here,	you	 can	calculate	monthly	 stock	 returns.	The	prices	 reported	here	are	adjusted	 prices—which	 means	stock	splits	and	dividend	payments	have	already	been	factored	in	such	that	you	need	 only	to	calculate	the	percentage	change	in	these	‘adjusted’	prices	to	derive	the	stock	returns.		 	 I	don’t	need	to	see	the	*full*	history	of	returns	calculations,	but	I’d	like	a	printout	of	the	first	 few	calculations	so	that	I	can	follow	your	work.	 	 	 	 Part	2:	Calculate	Portfolio	Expected	Return	and	Historical	Volatility	 Suppose	you	invest	half	of	your	wealth	in	MSFT	and	the	other	half	in	KO.		 1. Assuming	that	CAPM	holds,	what	is	the	annual	expected	return	on	your	portfolio?		 	 Based	on	the	five‐year	period	spanning	October	2012	through	October	2017…	 2. What	is	the	annualized	historical	volatility	of	your	portfolio	returns?	 3. What	is	the	annualized	average	return?	 4. What	is	the	realized	return	on	your	investment	if	you	purchased	this	portfolio	on	the	 first	trading	day	of	October	2012	and	sold	it	on	the	last	trading	day	of	October	2017?	 	 	 	 Part	3:	Calculate	Betas	 Try	 estimating	 beta	 yourself	 (for	 both	MSFT	 and	KO)	 using	 the	 five‐year	 time	 series	 of	 monthly	stock	returns	from	October	2012	through	October	2017	(inclusive).		 	 Recall	 that	 a	 stock’s	 beta	 is	 calculated	 as:	 the	 covariance	 between	 its	 excess	 returns	 and	 excess	market	returns	(for	simplicity,	you	can	just	use	S&P	500	index	returns),	divided	by	 the	variance	of	excess	market	returns—i.e.,	Cov(rM,ri)/var(rM).	(‘excess	return’	refers	to	the	 return	in	excess	of	the	riskless	rate).

Mohammad Wasif · Accepted Answer

R 1
	Date	Adj Close	Monthly return			Average monthly return	1.03%
	10/1/12	1412.16				Annual Return	12.38%
	11/1/12	1416.18	0.28%			Hence, expected return from the market is 12.36%
	12/1/12	1426.19	0.71%
	1/1/13	1498.11	5.04%
	2/1/13	1514.68	1.11%
	3/1/13	1569.19	3.60%
	4/1/13	1597.57	1.81%
	5/1/13	1630.74	2.08%
	6/1/13	1606.28	-1.50%
	7/1/13	1685.73	4.95%
	8/1/13	1632.97	-3.13%
	9/1/13	1681.55	2.97%
	10/1/13	1756.54	4.46%
	11/1/13	1805.81	2.80%
	12/1/13	1848.36	2.36%
	1/1/14	1782.59	-3.56%
	2/1/14	1859.45	4.31%
	3/1/14	1872.34	0.69%
	4/1/14	1883.95	0.62%
	5/1/14	1923.57	2.10%
	6/1/14	1960.23	1.91%
	7/1/14	1930.67	-1.51%
	8/1/14	2003.37	3.77%
	9/1/14	1972.29	-1.55%
	10/1/14	2018.05	2.32%
	11/1/14	2067.56	2.45%
	12/1/14	2058.9	-0.42%
	1/1/15	1994.99	-3.10%
	2/1/15	2104.5	5.49%
	3/1/15	2067.89	-1.74%
	4/1/15	2085.51	0.85%
	5/1/15	2107.39	1.05%
	6/1/15	2063.11	-2.10%
	7/1/15	2103.84	1.97%
	8/1/15	1972.18	-6.26%
	9/1/15	1920.03	-2.64%
	10/1/15	2079.36	8.30%
	11/1/15	2080.41	0.05%
	12/1/15	2043.94	-1.75%
	1/1/16	1940.24	-5.07%
	2/1/16	1932.23	-0.41%
	3/1/16	2059.74	6.60%
	4/1/16	2065.3	0.27%
	5/1/16	2096.95	1.53%
	6/1/16	2098.86	0.09%
	7/1/16	2173.6	3.56%
	8/1/16	2170.95	-0.12%
	9/1/16	2168.27	-0.12%
	10/1/16	2126.15	-1.94%
	11/1/16	2198.81	3.42%
	12/1/16	2238.83	1.82%
	1/1/17	2278.87	1.79%
	2/1/17	2363.64	3.72%
	3/1/17	2362.72	-0.04%
	4/1/17	2384.2	0.91%
	5/1/17	2411.8	1.16%
	6/1/17	2423.41	0.48%
	7/1/17	2470.3	1.93%
	8/1/17	2471.65	0.05%
	9/1/17	2519.36	1.93%
	10/1/17	2575.26	2.22%
	11/1/17	2584.84	0.37%
	Average		1.

Microsoft Word - FNCE3000_HW FNCE3000—GroupProject1(hardcopydueinclass,Thurs.10/19) ‐‐1of4‐‐ Ifyouhavetomakeanyadditionalassumptions,besuretostatethemupfront.Handinall...

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