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Financial Modeling in Excel – The assignment is intended to help

The assignment is intended to help you develop skills of implementing financial models in Excel. The assignment provides you with an opportunity to produce spreadsheet applications that solve and analyse corporate finance problems

2) Obtain from Bloomberg (or Datastream, or Thomson ONE Banker, or

Yahoo!Finance) the beginning of month values for the period 2001-2015 of both

the Dow Jones Utility Average Index and the PHLX Gold/Silver Sector Index.

Assume that you are a risk-averse investor.

For each of the two assets represented by the indices, calculate annual returns

and build a frequency distribution of annual returns. Provide graphs of the

distributions.

Explore the risk-return relationship for the two assets. Plot your results on a

graph with the standard deviation of annual returns of each asset on the

horizontal axis and the average annual return on the vertical axis, and comment

on which asset performed better.

Assume that you form a portfolio by investing equal amount of money in each

asset. Determine the average and standard deviation of the portfolio’s annual

returns. Provide your interpretation of the risk and return of the equally-weighted

portfolio compared to those of the individual assets.

Calculate and graph the average annual returns and standard deviations of all

portfolios that are combinations of Dow Jones Utility Average and PHLX

Gold/Silver Sector with the proportion of the Dow Jones Utility Average being 0,

10, 20, 30, 40, 50, 60, 70, 80, 90, 100%. Comment on the profile of the riskreturn

trade-off between the portfolios.

(35%)

 3) For the last ten-year period, collect from Bloomberg (or Datastream, or Thomson ONE Banker, or Yahoo!Finance) end-of-year values of the NASDAQ Composite Index (a stock index) and end-of-year prices of any two of the member stocks of NASDAQ Composite Index . Collect also the latest prices for the two selected NASDAQ Composite Index stocks. Assume that the NASDAQ Composite Index represents the market portfolio. Compute the excess return of each of the two stocks that you have selected against that of the NASDAQ Composite Index. Use the short-term Treasury Bill rate as the risk-free rate in the CAPM. Using the CAPM model and regression analysis, provide the estimates of both systematic risk and theoretical return for the selected two stocks. Discuss the results. Explain which of the two stocks has more systematic risk.

 (35%)

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