Stock Purchases and the Interpretation of Standard Deviation

Module 3 - SLP

RISK, RETURN, AND STOCK VALUATION

Virtual Stock Exchange Project

Module 3 SLP Assignment

Make 3 Stock Purchases, Provide Information about the Purchases, and Calculate and Interpret the Standard Deviation

Please download the Module 3 SLP template. You will type your answer into this Excel workbook. When finished with the SLP assignment, please save the document with your last name and submit to the dropbox.

1) Purchase 7 and 8: Buy stock in two companies that have returns that are inversely related. In other words, you might choose to buy stock in a company that does well when oil prices rise and one that does poorly when oil prices rise. You must explain this in the spreadsheet in the field “Reason for Buying.”

2) Purchase 9: Buy a stock that has countercyclical returns. In other words, its returns are inversely related to the business cycle.

You are free to make additional purchases, but you only need to explain the reasoning behind your required purchases 7 through 9.

3) You will need to include the following information for each stock in this workbook:

A: Company Name

B: Ticker Symbol

c: Reason for Buying

4) In addition to making these purchases and recording the above information, you will need to calculate the mean and standard deviation of the daily stock price for TWO of your required stock purchases for the last year. The historical stock price can be downloaded from finance.yahoo.com. Once you have searched on the company, using the ticker symbol, you can select the “Historical Data” tab. Click on “Download Data.” You will copy and paste this information into the SLP template and calculate the mean and standard deviation for the “Adj Close” price.

Once you have downloaded the data and calculated the mean and standard deviation for both stocks, you will answer the following additional questions in the template:

5) Based on the standard deviation alone, can you make any conclusions about the relative risk of the two stocks?

6) Given the risk, what can you say about the relative expected return of the two stocks?

Watch the videos & Read the material

https://www(dot)youtube(dot)com/watch?v=TXJVS7hRjns&t=3s

Bennet, T. [Killik & Co]. (2014, September 4). Tim Bennett explains: Understanding volatility: What is beta? [Video]. YouTube. https://www(dot)youtube(dot)com/watch?v=BMKEHiTa4mk

I Hate Math Group, Inc. (2013, March 3). CAPM: Capital asset pricing model [Video]. YouTube. https://www(dot)youtube(dot)com/watch?v=8w43SUAZsY0

Subjectmoney. (2013, January 3). Dividend discount model: Constant growth dividend discount model: How to value stocks [Video]. YouTube. https://www(dot)youtube(dot)com/watch?v=n76Pz3HOBPo&t=10s
Read Chapters 19 & 17:

I’ve also attached a word file which they should be able to use.

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