Taxila RAHUL R. Security Analysis and Portfolio Management (Merged - MBAZG520/PDFIZG520)(S2-21) Dashboard » Campus based Instruction » Non-Specific Programs > 2021-22 Semester 2 > MERGED Courses P S2-21_MergedSAPM > General ® Experiential Learning Assignment #1 Experiential Learning Assignment #1 Experiential Learning Assignment #1 FIN ZG 520 - SAPM Experiential Learning Assignment #1 Dear Students, Here are the details of the first (and only) experiential learning assignment for SAPM course. The due date for this, assignment is Sunday, April 24, 9.00 PM. | expect you to complete this assignment by this date/ time. Hence you have more than 2 weeks to work on this assignment, which should give you plenty of time to do a quality job in a timely manner. This is a Capstone assignment that will help you synthesize your learnings across the course. This, assignment will be for 15 marks 1) Select two stocks/ companies of your choice for this assignment, and also one index (to which they belong like Nifty 50 or BSE Sensex) First step is to select two stocks! companies of your choice. The only condition is that they should be from different industries. For example you may select Tata Motors and say Infosys (Manufacturing/ Automotive and IT), but do not select Wipro and Infosys (both IT industry). Ideally one of the companies should be the company you are working for or in the same industry as the one you are working in. But in any case select the companies from different industries, otherwise you will not be able to see any diversification benefits. 2) Download the daily closing stock price of these two companies (and also download the closing index) from Bloomberg or Prowess database for the past one year, ie. from 1 April 2021 to 31 March 2022. Details of how to access Prowess database can be found in Taxila under "FAQ and How To” page: http://taxila-aws.bits-pilani.ac.in/course/view.php?id=11 Details regarding Bloomberg will be covered in Live class. Some help materials will also be provided via Taxila. 3) From the price series you should compute the daily returns either simple returns or log returns. Please choose one method and be consistent, i.e. apply same method for both the stocks (and the index) for the one year entire period Please include a brief explanation as to your choice of method (in your report), ie. why you chose to use simple returns or log returns as the case may be. 4) First sheet should have identifying information: Make sure you have one sheet which has your student ID, name, ‘course code, course name, companies chosen and why (does it relate to the company you are working in? Means one of the companies should be the company you are working or from the same industry.)5) Next sheet should have the closing stock price and index data that you have downloaded 6) First set of calculations (do this in separate tab in Excel): You will need to calculate the following: - Average daily return, Variance, and Standard deviation of Stock #1 over the period of a year - Average daily return, Variance, and Standard deviation of Stock #2 over the period of a year = Covariance and Correlation across the two stocks (over the same time period) 7) Assume that you are being given Rs. 100,000 in your portfolio (as of the starting date) and you need to spit that 60:40 between the two stocks. You may choose which stock should get 60% and which stock should get 40%. 8) In another sheet in excel do the following set of calculations: - Expected return, Variance, and Standard deviation of Overall portfolio (with 60:40 split) 9) In this sheet you will also need to plot the efficient frontier and the CML. | will now outline some guidelines as to how to go about doing this. Compute the portfolio risk and portfolio return for various combinations of the two stocks that you have selected. Go from 0% in stock 1 and 100% in stock 2 all the way to 100% in stock 1 and 0% in stock 2 in increments of either 1% or 5% or 10%. You should now have two columns of data, one column which has the Portfolio risk and the second column which has the portfolio return. Draw a scatter plot using this data. Excel requires that the first column in your dataset should represent the X axis, which in our case is portfolio risk and the second column should represent the Y axis which in our case is the portfolio return. The chart that you obtain would be the efficient frontier. 10) In this sheet you would also need to plot the CML. For this identify the risk free rate from the intemet and mark it as a point on the Y axis on the same scatter plot. You can do that by adding a new data series consisting of only one point and label it as risk free rate. Then insert a line into this chart that is anchored at the risk free point and is tangential to the efficient frontier. This line represents the CML. 11) You may identify the point of tangency by using excel solver. The steps to do this are as outlined below. Remember the CML represent combinations of risk free asset and the market portfolio. Initially and quite arbitrarily assume that your market portfolio comprises of 50% in stock 1 and 50% in stock 2. Then calculate the risk and return of the market portfolio. Then compute the Sharpe ratio for this market portfolio in a cell in this sheet. Then use Excel solver to maximize the Sharpe ratio by changing the weight of the stocks in the portfolio. This will give you the point of tangency, which is the market portfolio. 7) Finally, in another sheet, run a regression to calculate the Beta of each of the stocks with respect to the market, where the market is proxied by the index. Graph the regression on a chart. Using the calculated Beta and the risk free rate calculate the required return for each of the stocks based on CAPM model. '8) Once you have completed all the above calculations in Excel, please write a short report in WORD (max two Ad size pages) outlining your key analysis, findings, learnings, as well any decisions you made such as methodology, etc. It should be a short report and to the point. PLEASE NOTE THAT THIS IS AN INDIVIDUAL ASSIGNMENT AND EACH STUDENT SHOULD WORK INDEPENDENTLY AND PRESENT THEIR FINDINGS INDIVIDUALLY. PLEASE DO NOT COPY OR PLAGIARIZE IN ANY WAY EITHER FROM YOUR FRIENDS OR FROM THE INTERNET, ETC. IF YOU DO THEN YOU WILL BE AWARDED “0” MARKS WITHOUR ANY HESITATION. | CAN EASILY FIND OUT IF YOU HAVE COPIED. You should upload a soft copy of your Excel Workbook and Word report to the course page in Taxila latest by Sunday, ‘April 24, 9.00 PM. Best Wishes!Submission status ‘Submission status No attempt Grading status Not graded Due date Sunday, 24 April 2022, 9:30 PM Time remaining 49 days 10 hours Last modified : ‘Add submission Make changes to your submission NAVIGATION Dashboard Site home Site pages Current course $2-21_MergedSAPM Participants General @) Frequently Asked Questions (FAQs) and HOW-TO Guide JB Announcements § General Discussion Forum JB Question/Answer Forum @) Course Handout | Old Question Papers VY Quiz 1 <) Experiential Learning Assignment #1 Slides from Textbook Publisher (for portion up to ‘Additional Slides from Instructor Topic 3 Topic 4 Topic 5 Topic 6 Topic 7Topic 8 Topic 9 Topic 10 Topic 11 Topic 12 Topic 13 Topic 14 Topic 15 Topic 16 Topic 17 Topic 18 Topic 19 Topic 20 Topic 21 Topic 22 Topic 23 Topic 24 Topic 25 My courses ADMINISTRATION Course administration You are logged in as RAHUL R. . (Log out) ‘S2-21_MergedSAPM