Assignment: Provide a quick rundown of Daniel’s situation. Discuss strategies and goals of how
can he “add value”. Think about issues such as efficiency, risk-return, and how to add value.
Include a recommendation of a portfolio make-up (weights, or even suggestions of other stocks). 1. Estimate and compare the risk and return of each stock and the S&P 500 (i.e. annual
standard deviation over the past five years). Which stock appears to be riskiest? How
might the expected return of each stock relate to its riskiness?
2. If the portfolio was equally weighted (20% in all stocks and ETF) what is the resulting
portfolio position (risk and return)? How does the variability of each stock affect the
portfolio? How does this relate to your answer in question 1 above? How would the
portfolio risk and return change if 50% of it is in SBUX, 20% in SPY, and 10% in each
of the remainder securities.
3. Compute the “beta” for each stock. What does beta measure? (Use SPY as the
measurement of the Market). How does this relate to your previous answers? What is the
portfolio beta (for the equally weighed)? What does it indicate? 4. What is the required rate of return for each stock (CAPM)? What is the CAPM for the
(equally-weighed) portfolio? Explain the number and put it into context? (Use the
average Risk-Free rate given below). 5. In what stock(s) (if any) should Daniel invest in? Make a recommendation of what you
would do if you were Daniel. What portfolio construction would you recommend? Would
you try something different? Write this report in sections, make sure each section has a heading. The first section: Risk
and Return of each individual stock (Q. 1). Second section: portfolio risk and return (Q. 2 &
3). Section 3: Expected Return (Q. 4). And finally, Section 4: Recommendation (Q. 5). Please see attached PDF and excel file
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