Excel > Investment Ppts > Fin3600_2

Month 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Price Dividend HPR Total Return Index 71.44 0.00 100 74.88 0.00 4.82% 104.82 78.44 0.00 4.75% 109.80 71.84 0.35 -7.97% 101.05 70.50 0.00 -1.87% 99.16 62.60 0.00 -11.21% 88.05 60.05 0.35 -3.51% 84.96 64.24 0.00 6.98% 90.89 63.80 0.00 -0.68% 90.26 71.02 0.38 11.91% 101.02 74.15 0.00 4.41% 105.47 72.79 0.00 -1.83% 103.53 73.78 0.38 1.88% 105.48 77.46 0.00 4.99% 110.74 79.13 0.00 2.16% 113.13 81.68 0.38 3.70% 117.32 84.79 0.00 3.81% 121.79 90.09 0.00 6.25% 129.40 90.26 0.38 0.61% 130.19 89.55 0.00 -0.79% 129.17 89.30 0.69 0.49% 129.80 88.99 0.41 0.11% 129.95 88.65 0.00 -0.38% 129.45 89.38 0.00 0.82% 130.52 88.70 0.41 -0.30% 130.12 Arithmetic Mean 1.21% Std. Deviation 4.81% Geometric Mean 1.10% Value of $10,000 $13,012.11

Probability Investment A 10% -22% 20% -2% 40% 20% 20% 35% 10% 50% E(R) 17.40% Std Dev 20.04% CV 1.1515

Returns Investment B -13% 1% 15% 29% 43% 15.00% 15.34% 1.0224

Investment C -10% 2% 12% 20% 38% 12.00% 12.20% 1.0165

Investment C offers the best risk/return tradeoff. You can see this by looking at the CV's for each investment. Remember, this measure risk per unit of return, so lower is better.

Beginning NAV Ending NAV Cash Distributions Holding Period (months)

$12.00 $12.75 $0.50 6

HPR Annualized HPR

10.42% 21.92%

Purchase Price Expected Price Cash Dividends Holding Period (months) HPR Annualized HPR Dividend Yield Capital Gains Yield

$100.00 $120.00 $5.00 12 25.00% 25.00% 5.00% 20.00%

Note that the dividend yield and capital gains yield sum to the total return.

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Total HPR HPR with Reinvestment Arithmetic Mean HPR Geometric Mean HPR (HPY) Avg Annual Return 1994-1998 Avg Annual Return 1998-2002 Std Deviation of Annual Returns CV of Annual Returns

NAV Distributions Annual HPRs Total Return Index 13.38 100 14.06 1.15 13.68% 113.68 12.27 0.84 -6.76% 106.00 14.62 0.71 24.94% 132.43 15.63 1.02 13.89% 150.82 16.65 1.26 14.59% 172.82 15.98 1.4 4.38% 180.40 20.01 1.19 32.67% 239.32 23.08 0.61 18.39% 283.34 26.93 2.8 28.81% 364.98 28.93 0.49 9.25% 398.72 201.94% 298.72% 15.38% 14.83% 9.68% 9.68% 21.93% 21.93% 11.71% 0.7612

Total (Nominal) Return Inflation Rate Real Return

18.50% 2.50% 15.61%

Purchase Price in Foreign Currency Total Cash Flow in Foreign Currency Sales Price in Foreign Currency Beginning Exchange Rate (US $ per unit of Foreign Currency) Ending Exchange Rate (US $ per unit of Foreign Currency) HPR in Foreign Currency HPR in US Dollars

1,000 60 1,025 0.65 0.67 8.50% 11.84%

Calculated Standard Deviation Periods per Year Annualized Standard Deviation

12.50% 12.00 43.30%

Year 1 2 3 4 5 6 7 8 9 10 HPR HPY Std Deviation CV

American Express IBM Sears 25.0% 13.0% 34.3% 34.3% -19.4% -2.3% -38.6% 25.7% -29.1% 3.4% -17.6% 57.5% 25.0% -38.0% 25.4% 28.1% 15.3% 53.0% 11.1% 31.9% -10.0% 42.5% 25.7% 54.5% 39.2% 67.6% 17.7% 59.9% 39.0% 0.1% 501.38% 160.47% 360.54% 19.65% 10.05% 16.50% 25.47% 31.47% 30.05% 1.1078 2.1975 1.4944

American Express offered the best risk/return tradeoff, next was Sears, and worst was IBM. The portfolio offers a better risk/return tradeoff than any of the individual stocks (look at the CV).

Portfolio 24.10% 4.20% -14.00% 14.43% 4.13% 32.13% 11.00% 40.90% 41.50% 33.00% 415.39% 17.82% 18.24% 0.9529