Using the S&P500 as a proxy for the overall market portfolio, comment on the performance through September 2021. - Essay Prowess

Using the S&P500 as a proxy for the overall market portfolio, comment on the performance through September 2021.

Using the S&P500 as a proxy for the overall market portfolio, comment on the performance through September 2021.

The front page of your main document should contain:

• Title page: Group number, student name, student ID (don’t worry about it)

• Table of contents

Note: Executive Summary, Introduction and Conclusion

 References: Harvard referencing style;

Assignment Questions Part A:  ( 40 marks)

Using prices data for S&P500 index and choose 4 companies (list provided on Black board, answer the following questions:

Question 1

Using the S&P500 as a proxy for the overall market portfolio, comment on the performance through September 2021.

Calculate Monthly holding period return and determine the expected value and standard deviation for each stock. Calculate coefficient of variation of each stock and rank them accordingly. Briefly comment on their performance from Jan 2016 to Dec-2020

Compute the monthly return correlation coefficients between each pair of two stocks and between each stock and the market index. Which pair of stocks has the highest and lowest correlation? Which stock(s) has the highest and lowest correlations with the market? Hint: Use Excel function CORREL () to compute the correlation coefficient between two data series.

Part B

Capital Budgeting (60 marks)

A regional Manufacturer for furniture product decided to set up its plants to produce furniture products. The company starts within a few months (2021), and the investment outlay would be $4 million. When the company begins operating in 2022, it would incur the operating costs with the expected value of $800,000 for 2022 and expected to increase 10% a year until 2026 when the project will be winded up. Given the recent demand from recovery of CCOVID-19, for 2022, the company expected to show revenues of approximately $2.5m for the year 2022 and expected to grow at the rate of 12%, a year, which will last until 2026.

At the end of project life in 2026, the plants and equipment will have a salvage value of $1m. Taxes would be paid at a 30% rate, and the equipment depreciation is to be calculated on a straight-line basis over the six-year life to zero balance. The project will a cost of capital of 10% per year.

Prepare cash flow statement  and compute the NPV and IRR of the proposed project. Comment on the feasibility of the project.

Perform a sensitivity analysis on NPV of the project on the following scenarios: (I) Sales increases/decreases by 10%. Comment on the feasibility of the project under each scenario.

Increase sales by 10%NPV=?IRR=?
Base caseNPV=?IRR=?
Decrease sales by 10%NPV=?IRR=?

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