Financial Management-Calculate the average monthly holding-period returns and the standard deviation of these returns for the S&P 500 Index, Walmart, and Target.

Note: Although not absolutely necessary, you are advised to use a computer spreadsheet to work the following problem.

a. Use the price data from the table in the popup window, LOADING…, for the Standard & Poor’s 500 Index, Walmart, and Target to calculate the holding-period returns for the 24 months from May 2013 through May 2015.

b. Calculate the average monthly holding-period returns and the standard deviation of these returns for the S&P 500 Index, Walmart, and Target.

c. From the following graphs, describe the nature of the relationship between the stock returns for Walmart and the returns for the S&P 500 Index.

d. Assume that you have decided to invest one-half of your money in Walmart and the remainder in Target. Calculate the monthly holding-period returns for your two-stock portfolio. (Hint: The monthly return for the portfolio is the average of the two stocks’ monthly returns.)

e. The table in the popup window, LOADING…, shows the returns on an annualized basis that were realized from holding long-term government bonds for the same period. Calculate the average monthly holding-period returns and the standard deviations of these returns. (Hint: You will need to convert the annual returns to monthly returns by dividing each return by 12 months.)

f. Now assuming that you have decided to invest equal amounts of money in Walmart, Target, and long-term government securities, calculate the monthly returns for your three-asset portfolio. What are the average return and the standard deviation?
g. Make a comparison of the average returns and the standard deviations for all the individual assets and the two portfolios that we designed. What conclusions can be reached by your comparison?

h. According to Standard & Poor’s, the betas for Walmart and Target are 0.28 and 0.75, respectively. Compare the meaning of these betas relative to the standard deviations calculated above.
i. Assume that the current Treasury bill rate is 3 percent and that the expected market return is 10 percent. Given the betas for Walmart and Target in part h, estimate an appropriate rate of return for the two firms.
Question content area bottom

Part 1

a. Calculate the monthly holding-period returns (HPR) for the Standard & Poor’s 500 Index for the 24 months from May 2013 through May 2015 in the following table. Enter a negative number if the holding-period return is negative.  (Round to two decimal places.)
MONTH
S&P 500
HPR
May-13
$1 comma 631
Jun-13
$1 comma 606

enter your response here%
Jul-13
$1 comma 686

enter your response here%

Last Completed Projects