Estimate the average rate of return of each stock individually

Financial Insights and Business Intelligence Assignment Three

In the New York Stock Exchange (NYSE), the common stocks of General Motors (GM) and Ford (F) are recorded historically below.

Year	GM Common   Stock Return	Ford Common   Stock Return
2003	-10.00%	-3.00%
2004	+18.50%	+21.29%
2005	+36.87%	+44.25%
2006	+14.33%	+3.67%
2007	+33.00%	+28.30%

Required tasks:

As a capital-budgeting manager at NYSE, you are required to calculate the following task for advising your client:

1) Estimate the average rate of return of each stock individually. (10%)

2) If your client invested in a stock portfolio comprising 40% of GM common stocks and 60% of Ford common stocks, what would have been the rate of return on the asset portfolio each year? (10%)

3) What would have been the average return on the portfolio during the period from 2003 to 2007. (10%)

4) Estimate the (individual) risk of each stock. (10%)

5) Calculate the risk for the asset portfolio (both common stocks taken together). (10%)

6) What is the coefficient correlation between the returns of the two common stocks? (10%)

7) Critically discuss the modern portfolio theory, which was pioneered by Harry Markowitz, in relation to your findings and advise your client accordingly in layman’s terms on the profitability of your client’s asset portfolio. (40%)

(Total 100%)

Guidelines

• 1000 words
• Out of 100 marks
• Weighting - 35% of course marks

Submit your assignment below when you are ready, but certainly before 13.00 UK time on

the Monday of week 9. Take particular note: