Lecture 1


Example 1


Calculate return and risk of following stocks. Consider return for one day and return for two days.


Theoretical price of stock


Trading day

                                                  Stock-i

                                                  Company 1

                                                           Company 2

                                                                    Company 3

                                                1.

                                                                                                  100

                                                                                                           200

                                                                                                                   1000

                                                2.

                                                                                                  110

                                                                                                           210

                                                                                                                   1050

                                                3.

                                                                                                  121

                                                                                                           205

                                                                                                                   1080

                                                4.

                                                                                                  95

                                                                                                           150

                                                                                                                   1020

                                                5.

                                                                                                  98

                                                                                                           210

                                                                                                                    950


Example 2


Calculate quarter return and risk of stocks (A-F). How will be the results of two-year return and
risk?

Create a covariance and correlation matrix.



                                                     Year

                                                     2014

                                                                                                                    2015

                                              Company

                                                                                                     I.

                                                                                                         II.

                                                                                                            III.

                                                                                                                 IV.

                                                                                                                     I.

                                                                                                                         II.

                                                                                                                            III.

                                                                                                                                 IV.

                                                 A

                                                                                                    1010

                                                                                                        1055

                                                                                                            1100

                                                                                                                1031

                                                                                                                     988

                                                                                                                        1065

                                                                                                                             918

                                                                                                                                1060

                                                 B

                                                                                                    2650

                                                                                                        3000

                                                                                                            3848

                                                                                                                3228

                                                                                                                    3638

                                                                                                                        4205

                                                                                                                            3979

                                                                                                                                4731

                                                 C

                                                                                                    1505

                                                                                                        2030

                                                                                                            2190

                                                                                                                2325

                                                                                                                    2250

                                                                                                                        2443

                                                                                                                            1700

                                                                                                                                1796

                                                 D

                                                                                                     178

                                                                                                         300

                                                                                                             325

                                                                                                                 396

                                                                                                                     351

                                                                                                                         370

                                                                                                                             335

                                                                                                                                 327

                                                 E

                                                                                                     281

                                                                                                         372

                                                                                                             358

                                                                                                                 494

                                                                                                                     460

                                                                                                                         539

                                                                                                                             443

                                                                                                                                 468

                                                 F

                                                                                                    2645

                                                                                                        3125

                                                                                                            3400

                                                                                                                3330

                                                                                                                    3400

                                                                                                                        3425

                                                                                                                            3475

                                                                                                                                4100

                                                 G

                                                                                                     547

                                                                                                         800

                                                                                                             803

                                                                                                                1070

                                                                                                                     975

                                                                                                                         952

                                                                                                                             997

                                                                                                                                 944



Example 3


Download the closing prices for last year of Exxon Mobile, Apple and Godman Sachs (use Yahoo
Finance). Then calculate expected return and risk for one day and one month. Further create
covariance and correlation matrix from one day returns.