Assignment 1 Title: Investing in the Market
Using a historical investment calculator found at https://financial-calculators.com/historical-investment-calculator, this assignment will consider the “what-if” of investing in different financial markets. This assignment will provide a visual representation of the Time Value of Money (graph) and apply specific variables to the formulas discussed in Chapters 3 and 4 of the textbook (CLO #1, CLO #3).
Go to https://financial-calculators.com/historical-investment-calculator and review the purpose of the investment calculator as a tool. This should give some context as to what an index is, how to use the calculator and important dates. The calculator should look something like this: https://lh4.googleusercontent.com/mOeW7gOKmiVhW62pcJbi2Z7aOLAkOj2R74_LGC6gvaoHvVxPQU_bKWH0zfZk-BDGPjwSn1P2I2TRMtH-A8jVZqJChXKgMIElesYo7Dz7RI42kwxN-irZiatiADEPy0FN6A
For each investment (1-3) select:
$10,000 amount invested
One time investment: Yes
Recent 10-year period (i.e. 2010-2020)
Recent 25-year period (i.e. 1995-2020)
Adjust the Index/Commodity for Inflation: No
Index: Select a total of 3 (different for each investment 1-3)
The final tab includes a chart of the 3 selected indices. You will want to change Logarithmic Scale to No, providing a consistent interval on the y-axis. In the right-hand corner of the chart, you can select the menu, downloading the graph (.png, .jpg, .pdf).
Write a 2-3 page paper including the following components:
Introduction – Identify the purpose of the calculator and what potential applications it could be used for. Introduce the three indices or investments that you selected. State the purpose of the assignment.
Body / Analysis – Provide an overview about investment and results of the historical calculator:
Describe the three selected indices. What are they composed of (assets)?
Provide a summary of the 10-year performance, including the chart.
Provide a summary of the 25-year performance, including the chart.
Identify the variables discussed in the textbook. Relate your findings from the calculator with formula 3.1 in the text. Does Future value match the ending dollar amount, given the other variables?
Conclusion – Summarize your findings of this data exercise. Provide any observations or insights you may have about this historical investment tool. Was the highest return the same for both the 10-year and 25-year period?
#2 Title: GIS and Credit Risk
we focused on Bonds and what variables might impact the interest rate for a given bond (asset). One of those factors was credit risk. Credit risk is determined by the possibility of default. It is used for pricing debt instruments (mortgage, business, auto, credit card, etc.). This assignment will consider geospatial data and the application it might have in determining credit risk, and ultimately the interest rate charged (CLO #2, CLO #5).
For this assignment, consider one of the following employment scenarios:
Mortgage Originator at Spaceship Mortgage (a national financial firm) – as the originator you are responsible for working with the lender to determine credit worthiness. You have customers from all over the country applying for mortgages. You can use this geospatial data to inform your team about potential leads.
Portfolio Manager of a municipal bond fund at Goldman Lynch (investment bank) – as the portfolio manager you buy municipal bonds (debt) throughout the country. Your clients rely on your credit analysis to ensure that the municipalities (city, county, state, etc.) make payment and repay the debt on the bonds. You should have a diversified portfolio, but do the best to mitigate risk.
Credit Analyst at CarCredit (a national auto loan institution) – as the credit analyst you are responsible to estimate risk for new and used car loans throughout the country. Your role includes updating the team on potential concerns or risks that arise from lending individuals money.
Select one of the three positions listed above. In addition, you may want to research about that industry and the use of credit (mortgage, municipal debt, auto).
Review available references regarding credit and geospatial data:
Chapter 6.5 Corporate Bonds
Berk J., & Demarzo P. (2019). Corporate Finance. [VitalSource Bookshelf]. Retrieved from https://bookshelf.vitalsource.com/#/books/9780134997568/
Credit Risk Overview:
What is GIS:
GIS & Finance / Risk:
Review the 9 maps with finance, economic, and education data. Examine the data by zooming into the state, county, and even zip code level. You will choose 3 of the 9 maps that you believe could support business decisions at your selected role.
Deliverable: In a Word document, provide a 2-3 page paper that addresses the following:
Introduction: Provide a brief overview of the employment scenario you selected above (mortgage originator, portfolio manager, or credit analyst). Identify job functions or roles you would expect to have at the company. Include the opportunity for geospatial data and analytics to support your firm.
Body/Analysis: Identify each of the 3 maps selected from above. For each map you should include:
Explain the information provided in the map.
Are there any regional trends (i.e. Southwest, Georgia, Northeast, etc.)?
How could this map support credit risk analysis in your business line?
Did you find anything interesting about the data (location specific)?
Remember, GIS is a tool you can use to improve decision making at your company. Make sure to apply the data to the potential decisions being made (lending, investing, etc.).
Conclusion: Summarize your research and findings regarding the use of GIS and data analytics. Given the data you identified, would you feel more confident making a credit decision?
#3Title: Portfolio creation
This assignment provides students with the opportunity of creating a stock portfolio. Risk and reward analysis of this portfolio will be conducted using historical prices. (CLO #2, CLO #5).
Directions: Today is July 26th, 2021 and you started a new job with a financial planning company. You have been asked to present the risk/reward profile of your own recommended 5 stock portfolio for one of the clients at an upcoming meeting. Specifically, they would like you to present the monthly average returns and standard deviation for the last 5 years. Given you are a new employee, the firm has offered you the option to select the client you would like to present your suggested portfolio. You must select one of the following clients:
Brad Smith: Brad is a recent college graduate who just started his career. He considers himself to be a “risk-seeking” investor. He would like to get his retirement account going by seeking above-average returns in the next five years. He is not concerned about risk as he has many years left in his career.
Andrew and Julia Peters: The Peters are newlyweds and would like to consider saving for a home. They have a five year horizon to save for a down payment on a house. They would like to invest in a portfolio that offers average growth and understand the risk of investing in stocks.
George and Mary Bell: The Bell’s are looking to retire in five years. They are on track given their savings, but would like you to invest in a portfolio of “conservative” stocks. This might include stocks paying dividends as it will allow them to receive income. They would like to see below average to average returns without a lot of risk.
The firm has suggested that you adhere to two rules:
Select five stocks that you believe as a portfolio represent the clients interest (risk/reward)
Note: For Week 7 Discussion Post, you will want to provide your selected client and the potential five stock portfolio you might construct. This discussion post should be a first attempt at constructing your portfolio, getting feedback and suggestions from your peers.
After selecting your client and deciding on your portfolio:
1) Collect price information from the Yahoo! Finance website (finance.yahoo.com) as follows:
a. Enter the stock symbol. On that page click “Historical Data”
b. For time period, enter the “start date” as July 1, 2016 and the “end date” as July 26, 2021, to cover the period. Choose monthly frequency.
c. After hitting “Apply” click “Download Data”.
d. Open the downloaded data in an Excel spreadsheet. Delete all the columns except the date and the adjusted close. Label the adjusted close the name of the stock.
e. Enter the next stock symbol in the main search box and search for the next stock. Repeat the same steps above for each stock, maintaining the same time frame. Make sure the first and last prices are in the same rows and lined up correctly.
2) Convert these stock prices to percent change in monthly prices (hint: create a separate worksheet within the Excel file).
3) Compute the mean monthly returns and standard deviations for the monthly returns of each of the stocks. Convert the statistics to annual for easier interpretation (multiply the mean return by 12, and the standard deviation by square root of 12: √12).
4) Add a column in your Excel worksheet with the average return across stocks for each month. This is the monthly return of an equally weighted portfolio of these 10 stocks. Compute the mean and standard deviation of monthly returns for the equally weighted portfolio. Convert these monthly statistics to annual (see step 3).
5) Create an Excel plot with the annual standard deviation (volatility) on the x-axis and annual average return on the y-axis.
a. Create three columns on your spreadsheet with the statistics you solved. The first column will have the ticker (symbol) and “Portfolio”, the second will have annual standard deviation, and the third will have annual mean return.
b. Highlight the data in the last two columns (standard deviation and mean), choose: > Insert > Chart > XY Scatter Plot. Complete the chart wizard with labels, titles, and headings.
Deliverable: Write a 1-2 page paper with:
Introduction: Identify the client, their interests, and what portfolio you selected.
Body/Analysis: Compare and contrast the investments from a risk / reward perspective over the last five years. What do you notice about the average of the volatilities with the individual stocks compared to the volatility of the equally weighted portfolio? What is the advantage of owning the portfolio?
Conclusion: Summarize the findings from your portfolio analysis. Provide any insight about future investment.
Upload the Word document and Excel file to Blackboard Assignments Week 7 folder. Make sure to cite the sources using APA format.
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