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1. For the following companies listed below find and retrieve historical data on monthly stock prices over the last five years (January 2009 – December 2013). The source of your data must be cited.

• Lululemon
• Telus
• Barrick Gold
• Nexen
• TD Bank

Using the stock price data, perform the following in a spreadsheet

a) Calculate the average monthly return, variance and standard deviation for each stock over the last five years.

Annualize these numbers. Plot the annualized average returns against standard deviation. What pattern if any do you notice. Describe the pattern and explain what you believe to be the cause of the pattern.

b) Calculate all the pairwise covariances and correlations of the stock returns and report these in the form of a variance/covariance matrix and a correlation matrix. Which two stocks are most correlated, and why you think this is so?

c) Form a portfolio with 100 shares of each stock. What is the expected return and standard deviation of this portfolio? Show where this portfolio is on you initial plot.

d) Now, using the same stocks, form another portfolio of your choosing that is more efficient than that in c). Provide a rationale as to why you chose this portfolio and find its expected return and standard deviation. Show where it is on your initial plot.

e) For each of the companies, compute the excess returns of their stocks and on the excess returns of the market (index) using the 3 month T-Bill rates and S&P/TSX index data (again, the source of your data must be cited). Next, run regressions of the excess returns of the three companies chosen against the excess returns of the market index. What are the values of their beta coefficients? Give a verbal interpretation of what the regression lines and the beta coefficients show about the stocks’ volatility and relative riskiness as compared to those of other stocks.

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2. Canadian Mid-Western (CMW) is a corporation with a market value of $120 million. It consists of two SBUs which are expected provide quite different returns, depending on the economic environment. The first SBU is a real estate property management business (RPM) while the second SBU is an online media portal (OMP) which is publicly traded. OMP has 3 million shares outstanding and currently trades at a market price of $25 per share. CMW is the majority shareholder of OMP, owning 64% of the company’s shares.

CMW is looking to boost the overall return of the corporation by focusing more on its online business. From historical data over several previous years, Shauna Benson, its CFO, has determined that CMW as a whole has had an average annual return of 12% and a variance of 13(%2). She has also been able to determine from market data that that the expected annual return on OMP was 20%, its variance was 30(%2) and its correlation with RPM was 0.55.

With these in mind Ms Benson wants to divest some of the company’s assets in RPM and use to proceeds to invest in OMP such that the newly rebalanced company will have an expected return of 14%. What will the new CMW look like? That is, what will its new percentage ownership of OMP be, how much capital will it still have invested in RPM, and what will be the estimated variance of the new overall company?

3. In 2004, Google Inc. went public with an IPO issued through a Dutch auction, ostensibly to avoid the underpricing problem prevalent in the usual underwritten IPO. However, Google’s IPO still “popped” on its first day of trading,indicating that it too may have been underpriced. In 300 words or less, discuss whether you think the Google IPO was underpriced and if so (not), then why (why not).
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