Investment project

Assume that you have $1,000,000. You will use this to form a hypothetical large-cap (each with at least $10 Billion in Market Capitalization) diversified stock portfolio by investing it in five stocks chosen from five different industries. Be sure to pick companies that pay dividends. No short sales, fractional shares, or margin trades are permitted. To determine how much you have invested in any particular stock, multiply the stock price by the number of shares you buy. You must use at least $900,000. Any funds left over will be held as cash, earning no interest. Dividends and other cash distributions will be added to cash, not reinvested. Trades are not permitted except in extraordinary situations, with my specific approval beforehand. Trading will only be considered between Friday of Week 1 to Thursday of Week 13, Sept 8 to December 15.

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Deliverable: 1. Spreadsheet that includes the number of shares you purchased for each stock and the closing prices as of the Friday of Week 1, Sept 11, of your stocks. Report the last dividend paid date and amount as well as the expected next ex-dividend and paid dates. Also, include your total investment and the amount held in cash. To get stock price information, go to or and click on “Finance.” Enter the ticker symbol of your stock and click on historical prices. Use the column that contains closing prices. 2. Conduct an analysis of the stocks, telling me why you chose these particular stocks based on your analysis. The analysis (3 to 6 pages plus spreadsheets) should include the following: a) Give a brief history of the companies and their products. Briefly discuss where the company is heading (new products, ventures). Identify who each company’s competitors are and what each company’s ranking is amongst its competitors. b) Find the reported beta and the adjusted beta of the companies, calculating the other if only one is reported. Report your source and describe how they calculated the betas including frequency of observations, as methods vary. Explain what the beta tells you about each company. c) What is the beta of your initial portfolio?

  1. Using the stocks in your initial portfolio, prepare a valuation of each stock and the initial
    portfolio using zero, constant or variable growth models with a market return at 8% and at
    12%. [Note that the growth rate must be less than the required rate of return.] Make sure
    you list the date of the valuation and the closing share price of your firm’s stock. Each
    firm’s required rate of return will depend on its beta.
  2. Is the stock of each of these companies over or undervalued?
  3. What is the expected return using the CAPM model?
  4. Prepare a time series ratio analysis (liquidity, activity, debt, and profitability). Identify any
    events during the period that may have caused the stocks’ prices to increase or decrease,
    explaining how these events affect the stocks’ prices.

Sample Solution

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