Please find the instructions in the documents attached.
Schumpeter Case Schumpeter Finanzberatung is planning to increase their allocation to equity and reduce their allocation to T-bills. The increased allocation can be invested in the equity index, as historically has been their strategy, or invested in one of two individual stocks: ThyssenKrupp or Deoleo. As a member of Schumpeter’s team, you are responsible for estimating the risk of these three investments. Prepare a answers to the questions below and describie how Schumpeter should measure and describe the risk of investments in the three assets. Support your answer with logic and the facts from the case. The bullet points below should help guide you. Assignment- Please show your work. Answer the questions below (show your work below) and show your work in excel. The case is pasted after the assignment below. The exhibits are in the excel file provided. 1) Qualitative Assessment of the Risks of Individual Assets. To answer this question, you should think about what kinds of risk each stock faces (based on the firm descriptions in the case). There are no numbers necessary in this question. 2) 2) Quantitative Measuring the Risk of Individual Assets. To measure the risk of each of the three investments (the STOXX Europe Total Market Index (TMI), ThyssenKrupp stock, and Deoleo stock) calculate the annualized standard deviation of the excess returns. a. Excess return is the return on the asset minus the risk-free rate. Use the return on German T-bills as the risk-free rate. b. To calculate the standard deviation of returns, use the STDEV.S function in Excel. You will then need to convert your answers from a monthly to an annual number by multiplying the monthly standard deviation by the square root of 12. a) What is the annualized standard deviation of the excess return on the equity index (STOXX Europe TMI)? Enter your answer in percent rounded to one decimal (e.g., 10.0% should be entered as 10.0). b) What is the annualized standard deviation of the excess return on ThyssenKrupp stock? Enter your answer in percent rounded to one decimal (e.g., 10.0% should be entered as 10.0). c) What is the annualized standard deviation of the excess return on Deoleo stock? Enter your answer in percent rounded to one decimal (e.g., 10.0% should be entered as 10.0). d) Rank the three assets from highest to lowest risk: a. STOXX Europe TMI b. ThyssenKrupp stock c. Deoleo stock 3) Quantitative Measuring the Risk of a Portfolio. Schumpeter is going to reduce their allocation to T-bills by one percentage point (from 35 to 34% of the portfolio). This one percent of the portfolio will be allocated to the STOXX Europe TMI, ThyssenKrupp stock, or Deoleo stock. a. To measure the risk of each hypothetical portfolio (the current allocation of 65% in STOXX Europe TMI and 35% in T-bills as well as the three possible new portfolios), calculate the annualized standard deviation of the excess return. b. To calculate this standard deviation of the excess returns, you will first have to calculate the historic monthly returns on the four hypothetical portfolios (e.g., 34% Tbills, 65% equity index, and 1% Deoleo stock). c. Then to calculate the standard deviation of returns, use the STDEV.S function in Excel. You will then need to convert your answers from a monthly to an annual number by multiplying the monthly standard deviation by the square root of 12. A) What is the increase in the annualized standard deviation of the excess return when 1% of the portfolio is moved from T-bills to the equity index? Enter your answer in percent rounded to four decimal places (e.g., if the standard deviation of returns rises from 10% for the current portfolio to 15.1234% for the proposed portfolio enter your answers at 5.1234). B) What is the increase in the annualized standard deviation of the excess return when 1% of the portfolio is moved from T-bills to ThyssenKrupp stock? Enter your answer in percent rounded to four decimal places (e.g., if the standard deviation of returns rises from 10% for the current portfolio to 15.1234% for the proposed portfolio enter your answers at 5.1234). C) What is the increase in the annualized standard deviation of the excess return when 1% of the portfolio is moved from T-bills to Deoleo stock? Enter your answer in percent rounded to four decimal places (e.g., if the standard deviation of returns rises from 10% for the current portfolio to 15.1234% for the proposed portfolio enter your answers at 5.1234). D) Rank the three assets from highest to lowest risk based on your estimates of how much they raise the risk of Schumpeter’s portfolios: a. STOXX Europe TMI b. ThyssenKrupp stock c. Deoleo stock 4) Measuring Investors’ Risk. How does your qualitative assessment of risk align with your quantitative findings? To answer this question, you should think about what kinds of risks investors are exposed to. Which of the two quantitative methods of measuring an asset’s risk should Schumpeter’s investors use? If your rankings using the two quantitative methods are the same, explain whether they will always be the same and why? If your rankings using the above two methods are not the same, explain why they differ and which method is preferable. 2