FIN-3500 - Financial Modeling - Provide Summary Statistics - Accounting & Finance Assignment Help

Assignment Task

Financial Modeling

In this assignment, you are a financial advisor who is tasked with helping a client. Your client is planning to invest their money in an equity-only portfolio and has already decided that their chosen stocks are Bank of America Corp, Intel Corporation, Coca Cola Company, Walt Disney Company, Caterpillar Inc., and American Express Company. However, the client needs your help deciding how much money they should invest in each stock.

Use the past five years of historical data (from Sept 30, 2015 to Sept 30, 2020) to answer the following questions (for each question, provide the corresponding neat and efficient R code)

1. To get a sense of the data, provide summary statistics of both the adjusted daily stock prices, and the monthly returns.

2. Plot the daily stock prices for each stock in separate graphs. Use proper titles for each graph.

3. Plot the "2017" daily stock prices for Bank of America and Intel Corporation in separate graphs.

4. If the client would like to only take long positions and wishes to have an efficient portfolio with the lowest risk possible (minimum variance portfolio), how much do they need to invest in each asset?

5. Provide a plot of the weights you obtained in part (4). Use proper title and axis labels for the graph.

6. How much is the expected "ANNUAL" return and risk of the minimum variance portfolio?

· Hint: Use "getTargetReturn" and "getTargetRisk" functions to extract the expected risk and return of the portfolio and save them.

· The output of "getTargetReturn" function reports "mean" and "mu". Pick "mean" as the expected portfolio return.

· The output of "getTargetRisk" includes 4 measures of risk. Pick "Sigma" as the measure of the portfolio expected risk.

· Note that since we are using monthly returns for portfolio optimization in this problem, all the estimated returns and risk values are on a monthly basis. To convert monthly returns to annual values, you should multiply the expected returns by 12 (number of months in one year) and multiply expected risk by square root of 12 (we would multiply by 252 and square root of 252 if the daily returns were used to construct the portfolios.)

7. If the client would like to go long in each stock and wishes to have an efficient portfolio with the highest Sharpe Ratio (optimal portfolio), how much do they need to invest in each asset, assuming the monthly risk-free rate is 0.1%?

8. How much is the expected "annual" return and risk of the optimal portfolio obtained from part 7?

9. Provide a bar plot of the weights corresponding to the portfolios on the efficient frontier set. Also, provide a plot of the efficient frontier set along with the tangency portfolio, global min variance portfolio, equal weights portfolio, and the capital market line.

10. If the client would like to go long in each stock and wishes to have an efficient portfolio with a target annual return of 15% (equivalent to 15%/12=1.25% per month), how much does she need to invest in each stock? What is the expected annual risk of the portfolio?

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