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In Recession scenarios it is assumed that your returns are 70% less than the expected returns in "Normal Growth

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In Recession scenarios it is assumed that your returns are 70% less than the expected returns in "Normal Growth." In Boom scenarios it is assumed that your returns are 30% more than the expected returns in "Normal Growth." Capital market expectations for stock and bond funds. Scenario Probability Recession 0,25 Normal Growth 0,50 Boom 0,25 Expected or Mean Return: Stock Fund Cryptocurrency Fund Rate of Return Prob. x Return Rate of Return Prob. x Return 53,247 177,49 230,737 SUM: 13,3 88,7 57,7 159,7 272,703 909,01 1181,713 SUM: 68,2 454,505 295,42825 818,1 Variance and standard deviation of returns. Scenario Recession Normal Growth Boom Probability 0,25 0,50 0,25 Stock Fund Deviation Rate from of Expected Squared Return Return Deviation 53,247 -106 11.341 177,49 18 315 230,37 71 4988 Variance = SUM Standard deviation = SQRT(Variance) Prob. x Sq. Dev. 2835,24 157,51 1247,11 4239,87 65,11 Covariance between the returns of the stock and bond funds. Deviation from Mean Return Covariance Product of Dev from Prob. X Mean Product of Dev Scenario Probability Stock Fund Recession 0,25 -106 57.770 14442,50 Normal Growth 0,50 18 1638 819,00 Boom 0,25 71 25844 6461,00 SUM: 21722,50 Correlation coefficient = Covariance/(StdDev(stocks)*StdDev(cryptocurrency)) = 1,00 Cryptocurrency Fund -545 91 364 Covariance = https://www.barchart.com/ Stocks: AMZN 40,62% NKE 50,94 52-week return for 05/02/20 PFE 1,77% DLA 113,95% NTFLX 15,03% GS 106,86% NIO 913,26% Avg. Stocks 177,49% Cryptocurrency: BTCUSD 504,97% 52-week return for 05/02/20 XRPUSD 634,03% ETHUSD 1588,04% Avg. Cryptocurrency 909,01% Cryptocurrency Fund Deviation Rate from of Expected Squared Return Return Deviation 272,703 -545 297468 909,01 91 8263 1181,713 364 132208 Variance = SUM Standard deviation = SQRT(Variance) Prob. x Sq. Dev. 74366,93 4131,50 33051,97 111550,39 333,99 1 Title Name: Code: Institution Date: 2 1.0.Re-sharing the details of the portfolio selected. Economist Dr. Harry Markowitz created the theory of portfolio diversification in 1952. The purpose of portfolio diversification is to minimize risk on investments, more specifically, unsystematic risk. According to Ryan Cockerham, the portfolio diversification theory, also known as the modern portfolio theory, helps investors better understand how to create a diversified portfolio that lessens the severity of volatility and risk as much as possible." The mean is used to measure the weight of investment decisions. This analysis helps depict the most significant reward at any level of risk or the least risk at a given level of return. The portfolio variance is a way to measure risk. The conflict shows how returns from a set of securities make up a portfolio and increase and decrease value over time. The standard deviations help calculate the level of risk in a portfolio. The covariance is used to decide which assets will be a part of the portfolio. The covariance measures the directional relationship between two asset prices. Lastly, the correlation coefficient calculates the strength of the relationship between the movements between two variables. The assets that I want to include in my portfolio will be from the following asset classes: cryptocurrencies, stocks, and bonds. The cryptocurrencies are Bitcoin, Ethereum, and Ripple. I chose these cryptocurrencies because, as an independent retail trader, I know that cryptocurrencies will soon be worth more than our global currencies, such as the U.S. Dollar. Just today, the value of Bitcoin has increased to $52k. The stocks I want to include are Amazon, Tesla, GameStop, Google, JP Morgan & Chase, Goodyear Tires, and McDonald's. I chose these stocks because amazon will always increase in value, mainly because of the pandemic. Online shopping is at an all-time high. Tesla and its origination have always been fascinating to me, especially after researching Elon Musk's adversity while creating this unique brand. Investments 3 in GameStop were recently going viral on social media. Google and McDonald's are leveraged so frequently worldwide, so I wanted to include those as well. Investing in a tire company during this snow season would be logical because there will be an incline in sales due to safety reasons. 1.1.Computation Capital market expectations for stock and bond funds. Scenario Probability Recession 0.25 Normal Growth 0.50 Boom 0.25 Expected or Mean Return: Stock Fund Cryptocurrency Fund Rate of Return Prob. x Return Rate of Return Prob. x Return 57.714 192.38 250.094 SUM: 14.4 96.2 62.5 173.1 121.596 405.32 526.916 SUM: 30.4 202.66 131.729 364.8 Variance and standard deviation of returns. Scenario Recession Normal Growth Boom Probability 0.25 0.50 0.25 Stock Fund Deviation Rate from of Expected Squared Return Return Deviation 57.714 -115 13,225 192.38 19 361 250.094 77 5929 Variance = SUM Standard deviation = SQRT(Variance) Prob. x Sq. Dev. 3306.25 180.50 1482.25 4969.00 70.49 Cryptocurrency Fund Deviation Rate from of Expected Squared Return Return Deviation 121.596 -243 59049 405.32 41 1681 526.916 162 26244 Variance = SUM Standard deviation = SQRT(Variance) Prob. x Sq. Dev. 14762.25 840.50 6561.00 22163.75 148.87 Covariance between the returns of the stock and bond funds. Deviation from Mean Return Covariance Cryptocurrency Product of Dev Prob. X Product Fund from Mean of Dev Scenario Probability Stock Fund Recession 0.25 -115 -243 27,945 6986.25 Normal Growth 0.50 19 41 779 389.50 Boom 0.25 77 162 12474 3118.50 Covariance = SUM: 10494.25 Correlation coefficient = Covariance/(StdDev(stocks)*StdDev(cryptocurrency)) = 1.00 4 Stocks: AMZN 54.98% 52-week return for 02/19/20 GT TSLA GOOG GME MCD JPM Avg. Stocks 3.02% 330.78% 38.55% 911.81% -0.29% 7.82% 192.38% Cryptocurrency: BTCUSD ETHUSD XRPUSD Avg. Cryptocurrency 468.51% 52-week return for 02/19/20 647.21% 52-week return for 02/19/20 100.23% 52-week return for 02/19/20 405.32% 52-week 52-week 52-week 52-week 52-week 52-week return return return return return return for for for for for for 02/19/20 02/19/20 02/19/20 02/19/20 02/19/20 02/19/20 My correlation coefficient of "1.00" means a perfect positive correlation between my Stock Fund and my Cryptocurrency Fund. I am considering that we discuss diversified portfolios that would not be a good thing because there is no diversity when it comes to my investment moving much such familiarity. 2.0.diversification and its measurement Diversification refers to a method, technique, or strategy used to manage an investor's risk across various portfolios. It is needed to minimize risk, maximize returns, and own investments that can perform differently in unique markets. Diversification is measured using the statistical measure referred to as correlation. The correlation coefficient is computed through the division of the resultant covariance of the two assets then divided by the product of the standard deviation of both assets. 3.0.Arbitrage pricing theory (APT) and capital asset pricing model (CAPM) In 1976, Ross came up with the APT, which shows how to computes the equilibrium returns rates employing the AP in the factor models (FM) framework. FM of price suggest that return rates can be articulated using a linear function made up of a smaller factor numbers. 5 On the other hand, the capital asset pricing model provides an avenue for explaining the expected return and the risk involved for a given set of investments. The CAPM that was introduced by (Sharpe 1964; litner, 1965) marks the asset pricing. The model provides insight on the type of application related to return; forty years later, the capital asset pricing model is still vibrant and widely used. The CAPM provides a methodology for converting risk into estimates of the projected return on equity. However, the application of CAPM has continued to generate great debate since a lot of academicians argue that CAPM is just but unrealistic assumptions. The main argument is that the two theoretical profiles provide two different types of risks and cover the various qualities of the premium scheme that are rewarding for taking such kind of risks. The capital asset pricing model emphasizes efficiency in diversification based on a known portfolio of assets. Still, it does not take into cognizance the impact of the unsystematic risk like Asset pricing theory. Conversely, Asset pricing theory, focusing on capital markets with many assets and emphasizing naivety of asset diversification and based on the assumption of large numbers, does not take into cognizance essential risks. 4.0.Efficient Market Hypotheses (EMH) An efficient market is described as a market with a lot of rational persons with a mentality of profit maximization who are in an active competition trying to project the future value of the market of given securities and where the present important information is more than freely available to each of the participants, later on, Harder (2010), defined and efficient market as a market where prices reflect all the information known and even investors who are not well informed while buying a diversified number of portfolios at the prices of table you provided by the market will be able to get a rate of return as generous than the one that the experts achieved. 6 The EMH is categorized into three, the Strong-EMH, the semi-strong EMH, and the weak EMH. Harder (2010) argued that the weak –EMH is the state of the idea that assets' current assets include all financial information historically. On the other hand, the semi-strong EMH assumes that the prices of financial assets reflect all information that exists in the market plus the historical prices and other necessary information, meaning that it includes the weak-form EMH and the prices change quickly and with no form of bias to be incorporated any additional public information that is to be made public. Lastly, the strong EMH assumes that prices included all the information available on a given market, consisting of the weak forms, the semi-strong, and all the private information regarding a given financial asset. 5.0.Behavioral and technical analysis of portfolios 5.1.Technical analysis of investment in bonds Observing the last ears bond yields on the United States 10-year treasury bonds, it's decreased to around 0.5%. In the previous month, the amount the output increased to 1.5%. It is technically accurate that when the result of a bond rises, the price of a bond falls, and therefore 2021 has not been an excellent year for investors in fixed income. Presently the 10-year Treasury bond is below by four percent for 2021 (Chinas, 2019). However, I should therefore consider other factors before making my final commitment. First, I should think that fixed assets are likely to be more stable than stable stocks. There a collapse is not expected to happen. This is because a bad year for bonds can be the same as a bad year for equities (Chinas, 2019). Additionally, one can risk. This is because one of the worst years in bonds was the year 2009 as the world economy was coming out of an economic crisis, and therefore, investors moved from the bond's safe havens to assets that were considered riskier (Capi?ski, Kopp,& 7 Ski,2014). This dynamism is likely to happen this year; however, a lot depends on reopening the economy and the policies that will be enacted in response to it. To the extent that other investors are remaining comforter in taking risks in bonds since government bonds are likely to suffer. Additionally, in the past few years, less income has been available from the yields from bonds. Therefore, it is hard for a bond to have a negative year when it is currently paying a 15% yield compared to a similar bond with only one percent. Also, a bad year for bonds is likely to be better than a bad year for stocks. 5.2. Bonds investment behavioral analysis Bonds appear a dull kind of investment since they grow very slowly, and thus they are not likely to make one rich quickly. Additionally, bond prices fall when the rates of interest increase. And in case one uses ETF, they are paid minimal monthly dividends, which majorly is not enough to buy an additional share through DRIP unless one has a lot of resources to invest. However, there are various reasons as to one should invest in bonds.Therefore bonds; give some considerable psychological pride during a period of inflation. Equities indeed provide more returns than equities, but there is a very significant advantage for holding at least come fixed asset in the form of a bond in one’s portfolio. 5.3. Technical analysis in investment in stock Investing in stock is the most rewarding of the three selected portfolios. Having an average return of 192.38 percent in a year is encouraging. Additionally, just like other investors, the technology stocks are projected to be going up this year. As seen, there are many gains in Amazon, Microsoft, and Apple shares (Capi?ski, Kopp & Ski, 2014). The three companies 8 account for more than 50% of the standard and poor's 500 16.6 percent full returns by December last year. However, in the previous few weeks, they have taken aback as the economic recovery spearheaded by the vaccine resulted in some restrictions in financial and small caps on other parts of the market. 5.4.Behavioral factors affecting stock investment decisions There are a lot of factors that result in market movements. Therefore any other investor is supposed to consider this to be successful in the current volatile stock market. In most cases, investors make investment decisions based on emotions that are like to be a result of the fear of missing out. These kinds of investors will follow stocks that appear to be doing well at a particular period in time for fear of losing their resources. This results in speculation without considering the underlying investment strategy. The other emotional driver is the fear of losing everything. Whereas investors don't need to be left out, the strongest of all the emotions is due to the fear of losing everything when there is a likelihood that the market will be volatile, which results in big share price swings in the capital market, people panic, making them not to put together their investments to avoid massive stock market crash. 5.5. Technical analysis of the cryptocurrency market Cryptocurrency is an excellent investment if one needs to get direct exposure to the digital currency demand and the projects or business that one is facilitating. Various publicly traded organizations can be able to give some limited exposure to cryptocurrency. However, such investments cannot come with a similar focus on blockchain or blockchain projects investing directly into a crypto asset (Dhankar, 2019). Nonetheless, the safety of cryptocurrency 9 is compromised, unlike the traditional stock and bond markets. They are prone to hacking; hence such breaches in security have resulted in investment losses as their digital currencies have been subject to theft. 5.6.Behavioral factors affecting cryptocurrencies According to AL-MANSOUR (2020), various behavioral factors make the price of bitcoin to be highly volatile. Such behaviors include fads, imitative contagion, and herding. A common challenge to the investors is the infamous representativeness heuristics which provides a weight to the experiences in the short term past over the hue averages when an analysis of prospects and their potential since this irrational investor is directed by their biasness, feelings, and sentiments to find out their decisions in approaching the financial markets (Youssef, 2020). 6.0.Value of including bonds in the portfolio As discussed in the bond technical analysis, it is a critical stabilizer in the all diversified portfolio since its fixed investment. Therefore, there is a slight likelihood that this will cause lower returns. Additionally, bonds are less risky as compared to the majority of the investment assets. Therefore like any otherwise investor investing in bonds ensures me a return of the coupon amount invested. 6.1.Bond pricing Bond pricing is not like stock or mutual funds because they are loans. When one buys a bond, one is giving a loan to the government or the company. Every bond possesses a par value, and therefore it can either trade at this price or either above or below. When a bond sells above this price, it is said to have been sold at a premium, while below this price is said to have been sold at a premium. The interest paid on a given bond is generally at a fixed rate. 10 Nonetheless, the yield depends on the changes in bond prices. This fluctuation in bond prices is a result of the forces of demand and supply. Additionally, the bond price is determined by discounting the present value future cash flow expected using the given discount rate. The main influences on the price of a bond are the demand and supply forces, the quality of credit and the duration to maturity. 7.0.Importance of industry analysis Industry analysis is essential in getting to know an organization's actual performance and ensuring that one makes the best investment decision. Therefore, it is a tool that enables someone to gain an in-depth understanding of the given company compared to its peers in the industry. Therefore, knowing the forces in the market and a specific industry is essential to any strategic investor. The stocks I want to include are Amazon, Tesla, GameStop, Google, JP Morgan & Chase, Goodyear Tires, and McDonald's. I chose these stocks because amazon will always increase in value, mainly because of the pandemic. The online shopping industry is at an all-time high. Tesla and its origination have always been fascinating to me, especially on how it’s been performing in the motor vehicle industry. This has been attributed majorly to the adventure of electronic motor vehicle production. Additionally, I was convinced after researching Elon Musk's adversity while creating this unique brand. Investments in GameStop were recently going viral on social media as compared to other companies in the industry. Google and McDonald's are leveraged in their industry, and they are so frequently worldwide, so I wanted to include those as well. Investing in a tire company during this snow season would be logical because there will be an incline in sales due to safety reasons. 11 8.0.Company analysis Company analysis is vital since the annual reports and the financial statements are essential in evaluating the company's performance. One is likely to select as a source of good stock for one's portfolio. 8.1.Amazon Company analysis Amazon delivered an outstanding performance in 2020, with its annual revenue increasing by 38 percent to $386 billion, registering a yearly increase of more than $100 billion. The company's net profit increased by a record 84% in 2020 compared to 2019. Additionally, Jeff Bezos is said to be the executive chair in the third quarter of 2021, and Jassy will be appointed the CEO at the same time. The company has solid and integrated digital platforms and an extreme level of proficiency in its value chain management. 8.2.Tesla Company Analysis Tesla has reported its 2020 profit to $721 million, which is a significant improvement compared to the loss of $862 million in the previous year. This is despite the drop in sales revenue and production in the U.S. due to the pandemic. Therefore Tesla is shifting towards profitability more significantly due to the auto industry, which has seen few successful new entrants in the last few years. The success was majorly due to its rising sales in China and Europe and an added fourth model, which has been the best seller in the U.S. This year, the company’s projected to sell more than 0.8 million vehicles due to its entry into the Chinese and German market. 8.3.GameStop company analysis GameStop posted a loss of more than $215 million in the year 2020. The company's ecommerce sales revenue increased by 175% in the same year, and the total sales of the e- 12 commerce contributed more than 12% of the total sales. Therefore, the company is transitioning from overreliance on traditional sales, which is essential as it closed more than 693 stores in 2020, remaining with 4816 around the globe. The company is currently undergoing several leadership changes that are likely to work for Ryan Cohen. Therefore, many investors have the hope that Cohen will assist in making the businesses more competitive in the era of e-commerce. 8.4.JPMorgan and Chase bank JPMorgan and Chase bank posted 3.79 dollars earnings per share in 2020, which was more than the estimated 2.62 dollars per share. The company posted $30.16B revenues which exceeded the estimated $28.7B. After the earnings report was made public, its share dropped to 1.3%. The firm's management argued that it expects to release 2.9 billion from its cash pile that it had set aside for the expected loan defaulters in the first quarter, which resulted in a $1.9 billion boost after $1 billion was charged off. JPMorgan and Chase is arguably the biggest bank in the United States by asset base since it posted a record fourth quarter for trading. The company's equity trading revenue amounted to $1.99B exceeding the estimated $1.84B, while its fixed income was $3.95B, under the $4.12B estimate by little. The shares of JPMorgan reduced to 8.7 percent last year compared to the 4.3% decline in the KBW Banker index. 8.5.Goodyear Tires & Rubber company analysis Goodyear is among the global best tire companies with one of the most familiar brand names. The company has established itself as a leader in service provision, tools and other innovative transport modes. The company operates more than an estimated one thousand outlets globally, offering products for sale to both commercial and consumer companies. The firm boasts more than 122 years in the tire market. The company's gross profit margin for the years 13 2016-200 averaged 22.7%. Observing the last five years, the company's gross margin picked in 2016 December and then it hit the lowest in 2020 at 17%. The company's net sales in 2020 were 12,321 million, which was a decrease of 16.4% compared to the previous years due to the low global tire volume of $2424. This is as a result of the lower sales related to aviation globally. However, despite the turn drums resulting from Covid -19, the company forecasts future profitability in assessing its ability to realize and reward its shareholders. 8.6.McDonald's McDonald's is the best burger chain in the world.The company's overall sales revenue reduced by 2.2 percent in the third quarter of 2020. This was some improvement over the previous quarter's drop. However, the company is still experiencing intense competition in the United States, France and Germany due to the current lockdown regulations. The company's revenue reduced to $5.42 billion in the three months that ended September 2020. However, the company is mainly recovering from the more than 30% low in the second quarter. The net income also increased by 10% to an approximated $1.76B, resulting from its stake in the Japanese subsidiary. References AL-MANSOUR, B. Y. (2020). Cryptocurrency market: Behavioral finance perspective. The Journal of Asian Finance, Economics, and Business, 7(12), 159168. https://doi.org/10.13106/jafeb.2020.vol7.no12.159 Amadi, A. A. (2004). Three essays in international portfolio diversification. 14 Arbitrage pricing theory (APT) - Ett Alternativ till CAPM? (1985). Campbell, J. Y. (2017). Financial decisions and markets: A course in asset pricing. Princeton University Press. Capi?ski, M. J., Kopp, E., & Ski, M. J. (2014). Portfolio theory and risk management. Cambridge University Press. Chinas, M. (2019). Efficient market hypothesis: Weak form efficiency: An examination of weakform efficiency. Library of Cyprus. Dhankar, R. S. (2019). Risk-return relationship and portfolio management. Springer Nature. Harder, S. (2010). The efficient market hypothesis and its application to stock markets. GRIN Verlag. Lessard, D. R. (1970). International portfolio diversification for developing countries. Lindblom, T., Mavruk, T., & Sjögren, S. (2017). Proximity bias in investors’ portfolio choice. Springer. Plastun, A. (2017). Behavioral finance market hypotheses. Oxford Scholarship Online. https://doi.org/10.1093/acprof:oso/9780190269999.003.0024 Youssef, M. (2020). What drives herding behavior in the cryptocurrency market? Journal of Behavioral Finance, 1-10. https://doi.org/10.1080/15427560.2020.1867142 Attempt 1 Next Up: Submit Assignment View Feedback Details Grading Rubric: Grading Rubric - Final Project FIN 453 Spring 2021.docx Assume you are a Fund Manager proposing a new fund to your investment company. In a paper, minimum of 8 pages, using the textbook and a minimum of (5) other sources - preferably recent and scholarly, address the below items: • Re-share the details of the portfolio you selected for Part 1, give the correlation coefficient and explain what that value means about your investments. • How is diversification defined? How is diversification measured? (Chapter 6) . In picking your newly proposed fund explain how CAPM and APT theories are used to assess assets. Be sure to thoroughly discuss each theories origin and purpose for investors. (Chapter 7) . What is the Efficient Market Hypothesis? (Chapter 8) • Provide analysis, behavioral and technical, to support the investments you choose on Part 1 of the case study turned in earlier this semester - include the data from that assignment here.Please be sure to adequately support your choices with several types of analysis. (Chapter 9) . Talk about the value of including bonds in a portfolio. What value do they add? How are they priced? (Chapter 10) • Discuss the importance of industry analysis. (Chapter 12) And talk about the industries you chose for Part 1 of the case study you turned in earlier this semester - include the data from that assignment here. • Discuss the value of company analysis and provide a thorough assessment of the companies you chose for your portfolio. (Chapter 13-14) Attempt 1 MacBook Air 80 DO 888 ga 2 FS DI FO 10 + ?? $ 4 ?x & 7 ( 9 ) 0 3 6 00 delete Y I E T U o P R { [ G H D F J ? L i < ? V B N M. 1 92 command option