Security Market Project

11/20/12

Finance 3310

Security Market Project

Introduction:

The purpose of this project is to explore asset allocation through the eyes of the Capital Asset Pricing Model. The final stated goal is to compare my actual rate of return with the rate of return that I would expect by my prediction using the Capital Asset Pricing Model.

Statement of Theory and Specific Problem:

Decide how much of my assets I wish to place in each security.

Calculate the number of shares that I have of each security.

Calculate my portfolio beta.

History:

Approach and Set-up:

I begin with $20,000,000. I placed $10,000,000 in U.S. 90-day Treasury Bills. To complete my portfolio, I added 12 U.S. stocks and 3 mutual funds from the list given to me. I placed $4,000,000 in 12 U.S. stocks, $2,000,000 in Ariel Fund, $2,000,000 in China Fund, and $2,000,000 in India Fund.

Analysis:

Since I placed $10,000,000 in T-Bills, I divided that amount into the $20,000,000 I begin with and that gave me .50 and I multiplied that by my beta of 0 and got 0 for the beta of T-Bills.

The $4,000,000 I placed in 12 U.S. stocks was divided by the $20,000,000 I begin with and that gave me .20 and I multiplied that by the beta of 1.47 and the answer I got was .29.

The $6,000,000 I placed in mutual funds was divided by the $20,000,000 I begin with and that gave me .30 and I multiplied that by the beta of 1.33 and that gave me .40.

The overall beta of my portfolio equaled .69. (0+.29+.40= .69)

U.S. Stocks- Price and Beta as of 9/24/12

C.B. Richard Ellis (CBG)

Price: 19.25

Beta: 2.27

Cheese Cake Factory (Cake)

Price: 35.81

Beta: 1.02

CISCO Systems (CSCO)

Price: 18.81

Beta: 1.43

John Deere (DE)

Price: 82.95

Beta: 1.40

Disney (DIS)

Price: 52.92

Beta: 1.15

Goldman Sachs (GS)

Price: 116.60

Beta: 1.63

Home Depot (HD)

Price: 59.39

Beta: 1.03

Morgan Stanley (MS)

Price: 17.04

Beta: 2.07

Oracle (ORCL)

Price: 32.23...