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Analytical Methods in Stock - Doc

   

Added on  2021-06-17

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Question 1The weekly holding period returns have calculated with the aid of the data provided for thetwo stocks namely MSFT and INTC along with the two indices namely NASDAQ and S&P500. The relevant results are shown in the excel sheet attached. Question 2It is imperative to note that standard deviation is a measure of absolute risk but the given taskdemands comparison of relative risk. As a result, risk per unit return for the various stocksand indices would be compared. The decision rule would be that the stock or index that hasthe highest value of risk per unit return would have the highest relative risk. The relative riskcomputation is as illustrated as follows..On the basis of the above computation, it becomes evident that the relative risk is highest forIntel Corporation stock as per the decision rule stated above.Question 3The empirical computations of the requisite probabilities can be computed by identifying thenumber of favourable cases from amongst the returns data that has been generated for therespective stocks. This is has been carried out in the attached excel and the relevant output forthe two stocks is pasted below.

From the above computation, it is appropriate to conclude that the empirical probability ofnegative weekly returns for Intel Corporation stock based on the given data is 0.4487 or44.87%. Further, the appropriate empirical probability of weekly returns exceeding 0.5% forMicrosoft Corporation stock is 0.4893 or 48.93%. Question 4For deriving a conclusion about the underlying population based on the sample data, it isimperative that hypothesis test should be conducted taking into consideration the samplestatistics. The hypotheses for conducting the hypothesis test are indicated as follows.Null Hypothesis (Ho): μNASDAQ= 0 which implies that average returns derived on NASDOQindex do not shown any significant deviation from 0% and hence can be assumed to be zero.Alternative Hypothesis (H1): μNASDAQ≠ 0 which implies that average returns derived onNASDOQ index do show significant deviation from 0% and hence cannot be assumed to bezero.As the standard deviation for the stock population is unknown, hence t statistic would bepreferred over z statistic. The relevant t test statistic has been computed based on the relevantsample data available and also the p value has been derived to test if the null hypothesiswould be rejected at 1% significance level. The requisite excel output in this regards ishighlighted as follows.

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