/Comprehensive Holding Period Return Analysis Homework

Assume throughout the following: (a) each T-bond has a $5,000 par value all the quotes below are asked prices; (b) each CD has a $100,000 par value; (c) your broker requires an initial margin of 65% on long positions and 75% on short positions, in both cases the maintenance margin is 55%; (d) the CD was issued on 10/13/99 and matures on 01/13/00; (e) your beginning balance is $1,000,000; (f) on 01/13/00 the bid price for the T-bond is 88:18; and (g) the CORRC,T = 0.55, CORRC,CD = 0.66, and CORRT,CD = 0.34.

Co. Name/Security Position Q St St xQ Strategy

10/13/99: (t=0)

Citicorp Stock S. Margin 5,000 $64 ½

6 ¼ Jun 18-34 Long 100 92:04%

90 day CD, Long 2 5.13%

DJIA Obs 10,200 Benchmark

11/13/99: (t=1)

Citicorp Stock S. Margin 5,000 $87 ½

6 ¼ Jun 18-34 Long 100 100:00%

90 day CD, Long 2 5.05%

DJIA Obs 10,400 Benchmark

12/13/99: (t=2)

Citicorp Stock S. Margin 5,000 $77 ¾

6 ¼ Jun 18-34 Long 100 98:25%

90 day CD, Long 2 5.55%

DJIA Obs 10,300 Benchmark

01/13/00: (t=3)

Citicorp Stock S. Margin 5,000 $57 ½

6 ¼ Jun 18-34 Long 100 88:22

90 day CD Long 4 5.88%

DJIA Obs 10,100 Benchmark

___________________________________________________________________________________
  1. Fill in the appropriate strategy for each security and St x Q.
  2. Discuss the appropriateness of the DJIA as a benchmark for your portfolio. Be specific by comparing each security to the composition of the DJIA (for the composition of the DJIA see page C3 of the WSJ).
  3. Calculate the monthly rate of price change for each security.
  4. Calculate the standard deviation for each security.
  5. Calculate the CV and geometric mean for each security.
  6. Compare each security’s CV to the ‘market’ and to each other and rank your securities in order of best to worst performers.
  7. What was your overall portfolio return assuming you initiated your position on 10/13/99 and liquidated on 01/13/00.
  8. What was your overall portfolio risk during the holding period?
  9. What direction were long-term interest rates moving from t=0 to t=1? NOTE: Short and long-term interest rates do not have to move in the same direction.
  10. When new 90 day CD’s are issued on 01/13/00, what will the new Vn be?
  11. Develop a cash flow statement for each month of your holding period. Use the transactions costs outlined in the guidelines of your simulation study.

Comprehensive Holding Period Return Analysis Class Work

Assume throughout the following: (a) The corporate bond has a $1,000 par value, pays interest semi-annually on July 1st and January 1st of each year; (b) your broker requires an initial margin of 55% on long positions and 65% on short positions, in both cases the maintenance margin is 45%; (c) you have a beginning balance of $50,000; and (d) the CORRS,B = 0.78.

Co. Name/Security Position Q St St xQ Strategy

11/22/99: (t=0)

McDonald Stock L. Margin 2,000 $98

Expo 8s02 Long 10 120%

S&P 500 Obs 1,300 Benchmark

12/22/99: (t=1)

Citicorp Stock S. Margin 2,000 $110

6 ¼ Jun 18-34 Long 10 100:00%

S&P 500 Obs 1,400 Benchmark

01/22/00: (t=2)

Citicorp Stock S. Margin 2,000 $77

6 ¼ Jun 18-34 Long 10 123%

S&P 500 Obs 1,000 Benchmark

02/22/00: (t=3)

Citicorp Stock S. Margin 2,000 $100

6 ¼ Jun 18-34 Long 10 124%

S&P 500 Obs 1,450 Benchmark

___________________________________________________________________________________
  1. Fill in the appropriate strategy and St x Q for each security.
  2. Calculate the monthly rate of price change for each security.
  3. Calculate the standard deviation for each security.
  4. Calculate the CV and geometric mean for each security.
  5. What was your overall portfolio return assuming you initiated your position on 11/22/99 to 02/22/00.
  6. What was you overall portfolio risk during the holding period?
  7. Write the equation for the standard deviation of a three-asset portfolio.
  8. Write the equation for the standard deviation of a four-asset portfolio. [Guess what? This is the one you need for your SS].
  9. Develop a cash flow statement using the transactions costs outlined in your SS.
  10. Re-evaluate your answer to number 9 assuming that the date of record is 11/30 and dividends of $0.50/share are paid on 1/15.

 

 

 

 

 

 

 

 

 

Comprehensive Holding Period Return Analysis Class Work

Assume throughout the following: (a) Each commercial paper has a $1,000 par value; (b) the CP was issued on 11/22/99; and (c) the CORRTR,CP = -0.13; and (d) you have a beginning balance of $350,000.

Co. Name/Security Position Q St St xQ Strategy

11/22/99: (t=0)

T-Row Price EM Mkts Long 300 $104

180 day Com. Paper Long 300 4.88%

S&P 500 Obs 1,300 Benchmark

12/22/99: (t=1)

T-Row Price EM Mkts Long 300 $100

180 day Com. Paper Long 300 4.99%

S&P 500 Obs 1,400 Benchmark

01/22/00: (t=2)

T-Row Price EM Mkts Long 300 $115

180 day Com. Paper Long 300 4.77%

S&P 500 Obs 1,000 Benchmark

02/22/00: (t=3)

T-Row Price EM Mkts Long 300 $120

180 day Com. Paper Long 300 4.66%

S&P 500 Obs 1,450 Benchmark

___________________________________________________________________________________
  1. Fill in the appropriate strategy and St x Q for each security.
  2. Calculate the monthly rate of price change for each security.
  3. Calculate the standard deviation for each security.
  4. Calculate the CV and geometric mean of each security.
  5. Compare each security’s CV to the ‘market’ and to each other and rank your securities in order of best to worst performers.
  6. What was your overall portfolio return assuming you initiated your position on 11/22/99 and liquidated on 02/22/00.
  7. What was your overall portfolio risk during the holding period?
  8. Develop a cash flow statement for each month of your holding period. Use the transactions costs outlined in the guidelines of your simulation study.

9. Re-evaluate #8 assuming a management expense ratio of 1% and a front-end load charge of 4%. All residual balances earn 2.25% compounded daily.