Mini-Case After graduating from college last spring with a major in ac- Dat coun
ID: 2786197 • Letter: M
Question
Mini-Case After graduating from college last spring with a major in ac- Dat counting and finance, Jim Hale took a job as an analyst trainee for an investment company in Chicago. His first few weeks 1-Nov-11 were filled with a series of rotations throughout the firm's vari 1-Dec-11 ous operating units, but this week he was assigned to one of the firm's traders as an analyst. On his first day Jim's boss called him in and told him that he wanted to do some rudimentary analysis of the investment returns of a semiconductor manu- facturer called Advanced Micro Devices, Inc. (Ticker: AMD), 1-May-12 Date 1-Jun-12 5.73 2-Jul-12 4.06 I-Aug-12 3.72 4-Sep-123.37 1-Oct-12 2.05 1-Nov-12 1.88 Closing Price Closing Price 5.69 5.4 3-Jan-12 6.71 l-Feb-12 7.35 1-Mar-12 8.02 2-Apr-12 7.36 6.08 Speciically. Jim was given the following month-end clos. He was then instructed by his boss to complete the follow ing prices for the company spanning the November 1, 2011, ing tasks using the AMD price data (note that AMD paid no through November 1, 2012: dividend during 2008).Explanation / Answer
1.
Closing price on 1-Nov-11= 5.69
Closing price on 1-Dec-11= 5.4
monthly realized rate of return for November month=(closing price dec 1-closing price Nov 1/price Nov 1)*100
=((5.4-5.69)/5.69)*100
=-5.01%
monthly realized rate of return for December month=(closing price dec 1-closing price Nov 1/price Nov 1)*100
=((6.71-5.4)/5.4)*100
=24.25%
monthly realized rate of return for Jan month=(closing price feb 1-closing price jan 1/price jan 1)*100
=((7.35-6.71)/6.71)*100
=9.53%
monthly realized rate of return for Feb month=(closing price march 1-closing price feb 1/price feb 1)*100
=((8.02-7.35)/7.35)*100
=9.11%
monthly realized rate of return for March month=(closing price April 1-closing price March 1/price March 1)*100
=((7.36-8.02)/8.02)*100
=-8.22%
monthly realized rate of return for April month=(closing price May 1-closing price April 1/price April 1)*100
=((6.08-7.36)/7.36)*100
=-17.39%
monthly realized rate of return for May month=(closing price June 1-closing price May 1/price May 1)*100
=((5.73-6.08)/6.08)*100
=-5.75%
monthly realized rate of return for July month=(closing price August 1-closing price July 1/price July 1)*100
=((3.72-4.06)/4.06)*100
=-8.37%
monthly realized rate of return for August month=(closing price septemeber 1-closing price August 1/price August 1)*100
=((3.37-3.72)/3.72)*100
=-9.41%
monthly realized rate of return for Septemeber month=(closing price october 1-closing price September 1/price September 1)*100
=((2.05-3.37)/3.37)*100
=-39.16%
monthly realized rate of return for october month=(closing price November 1-closing price october 1/price october 1)*100
=((1.88-2.05)/2.05)*100
=-8.29%
2.
Average monthly return using arithmetic mean= (-0.0501+0.2425+0.0953+0.0911-0.0822-0.1739-0.0575-0.0837-0.0941-0.3916-0.0829)/11
=-12.12%
Average monthly return using geometric mean=((1-0.0501)*(1+0.2425)*(1+0.0953)*(1+0.0911)*(1-0.0822)*(1-0.1739)*(1-0.0575)*(1-0.0837)*(1-0.0941)*(1-0.3916)*(1-0.0829))^1/11
=-6.69%