Investments efficient frontier

Investments efficient frontier

Objective: Develop the efficient frontier and select a recommended portfolio

Methodology:

(1) Become familiar with framework for the Capital Asset Pricing Model and the Efficient Frontier
(2) Your team will choose three companies in different industries traded in the US stock market
(3) Search on internet (Yahoo Finance, Google Finance, or other site) for information on the stock prices of your three companies
(4) Use dividend discount model to calculate the expected return on the stock of your three companies. Explain and conceptually justify your assumption for future dividend growth rate.
(5) Use the capital asset pricing model to estimate the expected return on the stock of your three companies. Find at least two different sources of the beta for your company on the internet. You will also do some statistical analysis of historical stock price information to calculate the beta by estimating the covariance of the stock return with the market return. (In US assume expected market return equals the expected return on the S&P500 Index). Explain and justify your assumptions.
(6) Use the historical stock price data to estimate the standard deviation of the return of the stocks of your three companies.