May 1, 2020
###### FINANCIAL DECISION MAKING – WEEK 1
May 1, 2020

Financial decisions often deal with risk and uncertainty. Unfortunately, human beings are not very good at assessing probabilities. In particular, people are unable to accurately assess probabilities that are close to zero or are slightly below one. As a result of this, people often make mistakes when judging probabilities, and these mistakes may be perceived as irrational decisions.

For this Project Assignment, you will examine the risk and return characteristics of various publicly-traded firms. You will obtain the monthly prices for these firms and compute the risk and performance measures for each of these firms. You will also compute the risk and performance measures of various portfolios.

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### Instructions

Identify 12 (or more if you want the project to be more realistic) publicly-traded firms with which you are familiar. Obtain the monthly prices for these firms and compute the following risk and performance measures for each of those firms.

• Mean monthly arithmetic return
• Mean monthly geometric return
• Standard deviation of return
• Beta relative to the market
• Idiosyncratic volatility using CAPM
• Sharpe ratio
• Jensenâ€s alpha (same as CAPM alpha)
• Betas relative to all the factors in the four-factor model
• Four-factor alpha

Next, using your risk and performance measures, develop a trading strategy, i.e., use past data to rank firms such that higher-ranked firms are likely to perform well in the future while lower-ranked firms would perform poorly. Create a zero-cost portfolio in which you hold a Long position in firms in the top one third and a Short position in the firms in the bottom third. Compute all the risk and performance measures for this new portfolio.

The data for the project can be obtained from:

https://finance.yahoo.com/

http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

### To complete this Assignment:

Write a short report (in a Word document, not more than 5 pages, double-spaced) that contains the following:

• Exhibit 1: Portfolio that includes all the risk and performance measures for all firms (i.e., a table in which the rows are the various firms and the columns are the various risk and performance measures. This exhibit will be embedded in your Word document and at the end of your report.
• Exhibit 2: Annual Returns that include the risk and performance measures of your new portfolio (i.e., the trading strategy) and a plot showing the annual returns (i.e., a table showing the risk and performance measures and a plot chart showing the annual returns. This exhibit will be embedded in your Word document and a the end of your report.)
• A brief description of all the calculations used
• A brief discussion of any interesting observations from the results of your analysis

#### “PLACE THIS ORDER OR A SIMILAR ORDER WITH BRAINY TERM PAPERS AND GET AN AMAZING DISCOUNT”

FINANCIAL DECISION MAKING – WEEK 1 – ASSIGNMENT was first posted on May 1, 2020 at 9:36 pm.