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# Q 1 :Estimate and compare the returns and variability (i.e.

## annual standard deviation over the

past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to
be riskiest?
Ans : Reynolds appears to be the riskiest stock based on the returns and variability .it holding
the highest average return out of two at 1.87%. With their higher return rate over the three they
also hold the highest standard deviation of 9.3%.highest standerd deviation shows reynolds are
more risky.

Q2 :Suppose Sharpes position had been 99 percent of equity funds invested in the S&P 500
and either one per cent in Reynolds over one percent in Hasbro. Estimate the resulting portfolio
position. How does each stock affect the variability of the equity investment? How does this
Ans : Weight: .99 in S&P 500
Alternative: .01 in Reynolds or Hasbro
Average Returns:
S&P 500 = 0.57%
Reynolds= 1.87%
Hasbro = 1.18 %
Portfolio Return: Weight * Return + Weight2 * Return2
Choosing Reynolds
Portfolio Return = .99(.57)+ .01(1.87) = .587 or 58.7%
Choosing Hasbro
Portfolio Return = .99(.57)+ .01(1.18) = .580 or 58%
Reynolds stock fluctuates more than Hasbros so the return is higher to accommodate the
increased variability that Reynolds offers. On the other hand, Hasbro is less variable than
Reynolds therefore the return on the equity investment is lower since the risk is lower. In
reviewing this information it confirms the answer I stated in question 1 regarding which stock
appears to be the riskiest.
Q3 :Perform a regression of each stocks monthly returns on the Index returns to compute a beta for
each stock. How does this relate to your answer in question 2 above?
Ans :beta of hasbro is greater then reynold that shows hasbro stock is more possitively corlated to
benchmark and have the highest risk .in question 2 reynold more riskey but due to less possitively
corelated the portfolio of reyold is less riskey .
Q4 :How might the expected return of each stock relate to its riskiness?
Ans :The higher the risk must equate to higher returns as we see reynold has higher the return and
higher the stander deviation .

## Q5: In what stock(s) (if any) should Sharpe invest?

Ans: reynold has the highest return and standerdeviation but it has lowest Beta so Alex sharpes
choose reynolds to make portfolio because due to smaller Beta it reduce the portfolio risk .

Months
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41

Date
2-Jan
2-Feb
2-Mar
2-Apr
2-May
2-Jun
2-Jul
2-Aug
2-Sep
2-Oct
2-Nov
2-Dec
3-Jan
3-Feb
3-Mar
3-Apr
3-May
3-Jun
3-Jul
3-Aug
3-Sep
3-Oct
3-Nov
3-Dec
4-Jan
4-Feb
4-Mar
4-Apr
4-May
4-Jun
4-Jul
4-Aug
4-Sep
4-Oct
4-Nov
4-Dec
5-Jan
5-Feb
5-Mar
5-Apr
5-May

S&P 500
-1.70%
-2.31%
4.37%
-5.06%
-1.19%
-7.15%
-8.23%
0.64%
-10.14%
7.35%
5.96%
-5.50%
-2.46%
-1.72%
0.89%
8.12%
6.18%
1.48%
2.18%
2.34%
-1.06%
5.89%
1.51%
4.39%
2.20%
1.40%
-1.20%
-2.56%
1.24%
2.00%
-3.88%
0.11%
1.91%
1.66%
4.43%
3.34%
-2.74%
2.09%
-1.86%
-2.66%
3.59%

Reynolds Hasbro
6.13%
9.87%
-1.37%
6.87%
2.17%
-23.97%
1.64%
7.71%
-31.48%
0.57%
-4.81%
9.09%
0.59%
-5.78%
-19.17%
-12.68%
21.02%
9.15%
-4.54%
-3.86%
15.78%
21.47%
14.93%
5.34%
1.56%
4.52%
-1.99%
7.06%
-13.23%
20.27%
6.45%
4.93%
-9.88%
1.21%
9.83%
3.93%
2.32%
1.90%
-1.66%
-3.25%
6.34%

1.66%
-13.27%
10.55%
1.01%
-4.26%
-11.37%
-9.66%
7.35%
-15.36%
-8.18%
25.44%
-9.91%
3.90%
0.92%
14.70%
15.19%
0.06%
9.24%
7.78%
-1.86%
0.97%
16.70%
1.42%
-3.75%
-7.19%
10.73%
-0.55%
-13.15%
4.08%
-3.36%
-4.37%
1.98%
1.46%
-5.90%
7.57%
1.84%
1.14%
7.76%
-3.17%
-7.48%
6.66%

42 5-Jun
43 5-Jul
44 5-Aug
45 5-Sep
46 5-Oct
47 5-Nov
48 5-Dec
49 6-Jan
50 6-Feb
51 6-Mar
52 6-Apr
53 6-May
54 6-Jun
55 6-Jul
56 6-Aug
57 6-Sep
58 6-Oct
59 6-Nov
60 6-Dec
average return
standard deviation
Beta

0.99%
-4.96%
3.02%
4.22%
5.72%
5.53%
-0.78%
0.76%
-5.65%
0.93%
-1.10%
-5.07%
-2.19%
2.38%
-4.12%
3.82%
4.73%
8.39%
0.19%
7.09%
-1.18%
3.90%
6.08%
5.05%
-0.36%
4.96%
-4.29%
1.76%
-0.61%
3.99%
1.15%
3.93%
-6.59%
-3.30%
0.26%
-5.94%
-0.19%
4.88%
-2.32%
-0.28%
9.96%
3.26%
2.30%
2.65%
8.56%
1.81%
-4.76%
12.07%
3.60%
1.92%
13.93%
2.13%
1.71%
3.20%
0.91%
1.91%
1.87%
0.57%
1.87%
1.18%
0.036017 0.093665 0.081158
0.735763 1.419799

potfolio return
s&p500 and
hasbro
s&p500 and
reynold

0.580%
0.587%