Date Price spx. Price AAPL Aug-11. 1218.89. 374.27 Sep-11. 1131.42. 370.85 Oct-1

Question

Date Price spx. Price AAPL Aug-11. 1218.89. 374.27 Sep-11. 1131.42. 370.85 Oct-11. 1253. 3 393.67 Nov-11. 1246.96. 371.71 Dec-11. 1257.6. 393.88 Jan-12. 1312.41. 443.95 Feb-12. 1365.68. 527.55 Mar-12. 1408.47. 583. 09 Apr-12. 1397.91. 567.95 May-12. 1310.33. 561.87 Jun-12. 1362.16. 567.97 Jul-12. 1379.32. 594 Aug-12. 1406.58. 649.76 Sep-12. 1440.67. 651.58 Oct-12. 1412.16. 581.47 Nov-12. 1416.18. 574.27 Dec-12. 1426.19. 522.16 Jan-13. 1498.11. 446.92 Feb-13. 1514.68. 435.62 Mar-13. 1569.19. 436.86 Apr-13. 1597.57. 436.98 May-13. 1630.74. 446.78 Jun-13. 1606.28. 393.93 Jul-13. 1685.73. 449.56 Aug-13. 1638.17. 491.7 1- calculate monthly return for AAP and the S&P using the adjusted end of month prices 2- calculate beta for AAPL using S&P 500 returns as your market index. 3- calculate covariance of AAPL's returns with those of the S&P 500 and the variance of the S&P 500 return. 4 -calculate the the proportion of total risk (variance) in the returns for AAPL that is systematic and unsystematic. Which measure of risk is most relevant for investor holding AAPL only? Which measure is most relevant for an investor holding part of a well diversified portfolio? What proportion of AAPL 's total risk can be diversified?       Date Price spx. Price AAPL Aug-11. 1218.89. 374.27 Sep-11. 1131.42. 370.85 Oct-11. 1253. 3 393.67 Nov-11. 1246.96. 371.71 Dec-11. 1257.6. 393.88 Jan-12. 1312.41. 443.95 Feb-12. 1365.68. 527.55 Mar-12. 1408.47. 583. 09 Apr-12. 1397.91. 567.95 May-12. 1310.33. 561.87 Jun-12. 1362.16. 567.97 Jul-12. 1379.32. 594 Aug-12. 1406.58. 649.76 Sep-12. 1440.67. 651.58 Oct-12. 1412.16. 581.47 Nov-12. 1416.18. 574.27 Dec-12. 1426.19. 522.16 Jan-13. 1498.11. 446.92 Feb-13. 1514.68. 435.62 Mar-13. 1569.19. 436.86 Apr-13. 1597.57. 436.98 May-13. 1630.74. 446.78 Jun-13. 1606.28. 393.93 Jul-13. 1685.73. 449.56 Aug-13. 1638.17. 491.7 1- calculate monthly return for AAP and the S&P using the adjusted end of month prices 2- calculate beta for AAPL using S&P 500 returns as your market index. 3- calculate covariance of AAPL's returns with those of the S&P 500 and the variance of the S&P 500 return. 4 -calculate the the proportion of total risk (variance) in the returns for AAPL that is systematic and unsystematic. Which measure of risk is most relevant for investor holding AAPL only? Which measure is most relevant for an investor holding part of a well diversified portfolio? What proportion of AAPL 's total risk can be diversified?       Aug-11. 1218.89. 374.27 Sep-11. 1131.42. 370.85 Oct-11. 1253. 3 393.67 Nov-11. 1246.96. 371.71 Dec-11. 1257.6. 393.88 Jan-12. 1312.41. 443.95 Feb-12. 1365.68. 527.55 Mar-12. 1408.47. 583. 09 Apr-12. 1397.91. 567.95 May-12. 1310.33. 561.87 Jun-12. 1362.16. 567.97 Jul-12. 1379.32. 594 Aug-12. 1406.58. 649.76 Sep-12. 1440.67. 651.58 Oct-12. 1412.16. 581.47 Nov-12. 1416.18. 574.27 Dec-12. 1426.19. 522.16 Jan-13. 1498.11. 446.92 Feb-13. 1514.68. 435.62 Mar-13. 1569.19. 436.86 Apr-13. 1597.57. 436.98 May-13. 1630.74. 446.78 Jun-13. 1606.28. 393.93 Jul-13. 1685.73. 449.56 Aug-13. 1638.17. 491.7 1- calculate monthly return for AAP and the S&P using the adjusted end of month prices 2- calculate beta for AAPL using S&P 500 returns as your market index. 3- calculate covariance of AAPL's returns with those of the S&P 500 and the variance of the S&P 500 return. 4 -calculate the the proportion of total risk (variance) in the returns for AAPL that is systematic and unsystematic. Which measure of risk is most relevant for investor holding AAPL only? Which measure is most relevant for an investor holding part of a well diversified portfolio? What proportion of AAPL 's total risk can be diversified?      

Explanation / Answer

a. Date             Price spx.        Price AAPL Price spx. Price AAPL Monthly Return spx Monthly Return AAP Aug-11 1218.89 374.27 Sep-11 1131.42 370.85 -7.18% -0.91% Oct-11 1253.30 393.67 10.77% 6.15% Nov-11 1246.96 371.71 -0.51% -5.58% Dec-11 1257.60 393.88 0.85% 5.96% Jan-12 1312.41 443.95 4.36% 12.71% Feb-12 1365.68 527.55 4.06% 18.83% Mar-12 1408.47 583.09 3.13% 10.53% Apr-12 1397.91 567.95 -0.75% -2.60% May-12 1310.33 561.87 -6.27% -1.07% Jun-12 1362.16 567.97 3.96% 1.09% Jul-12 1379.32 594.00 1.26% 4.58% Aug-12 1406.58 649.76 1.98% 9.39% Sep-12 1440.67 651.58 2.42% 0.28% Oct-12 1412.16 581.47 -1.98% -10.76% Nov-12 1416.18 574.27 0.28% -1.24% Dec-12 1426.19 522.16 0.71% -9.07% Jan-13 1498.11 446.92 5.04% -14.41% Feb-13 1514.68 435.62 1.11% -2.53% Mar-13 1569.19 436.86 3.60% 0.28% Apr-13 1597.57 436.98 1.81% 0.03% May-13 1630.74 446.78 2.08% 2.24% Jun-13 1606.28 393.93 -1.50% -11.83% Jul-13 1685.73 449.56 4.95% 14.12% Aug-13 1638.17 491.70 -2.82% 9.37% b. ß = Covariance(rs, rb)/Variance(rb) where rs is the return on the stock and rb is the return on a benchmark index rs in this case will be return on AARP rb in this case will be return on S&P 500 Numerator 0.001012421 Denominator 0.001358361 Beta 0.74532528 c. covariance of AAPL's returns with those of the S&P 500 0.001012 variance of the S&P 500 return 0.001358

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