Business finance
Paper details:
The data below presents monthly closing prices of Standard & Poor’s 500 Index, Wal-Mart, and Target to
calculate the holding-period returns for the 24 months from May 2013 through May 2015
Month S&P500 Walmart Target
a. Use the price data from the table (use the excel posted in Week 4 in Assessment Part) for the Standard
& Poor’s 500 Index, Wal-Mart, and Target to calculate the holding-period returns for the 24 months from
May 2013 through May 2015. Calculate the average monthly holding-period returns and the standard
deviation of these returns for the S&P Index, Wal-Mart, and Target. Please compare the results obtained
for these three series. (15 points)
b. Plot (1) the holding-period returns for Wal-Mart against the Standard & Poor’s 500 Index, and (2) the
Target holding-period returns against the Standard & Poor’s 500 Index. From your graphs, describe the
nature of the relationship between stock returns for Wal-Mart and the returns for the S&P 500 Index.
Make the same comparison for Target. (analyze if the returns of the individual stocks and the stock
market index are positively or negatively related according to your graphs) (10 points)
c. Assume that you have decided to invest one-half of your money in Wal-Mart and the remainder in
Target. Calculate the monthly holding-period returns for your two-stock portfolio. (the monthly return
for the portfolio is the average of the two stocks’ monthly returns.) Plot the returns of your two-stock
portfolio against the Standard & Poor’s 500 Index as you did for the individual stocks in part b. How
does this graph compare to the graphs for the individual stocks? Explain the difference. (10 points)
d. Make a comparison of the average returns and the standard deviations for all the individual assets and
the portfolio that was created. What conclusions can be reached by your comparison in the context of
the risk and return (hint: think about the benefits of the diversification)? (5 points)
e. According to Standard & Poor’s, the betas for Wal-Mart and Target are 0.28 and 0.75, respectively.
Compare the meaning of these betas relative to the standard deviations calculated above. Answer the
question in the context of the systematcgoic and unsystematic risk. (10 points