Cashback Offer (1st - 15th October 2020). Get Flat 10% Cashback credited in your account on a minimum transaction of \$80. Post Your Question

Question Details Normal
\$ 1.00

# fin421 assignment1

• Due on 20 Jan, 2017 12:00:00
• Asked On 18 Jan, 2017 10:14:11
• Due date has already passed, but you can still post solutions.
Question posted by

Portfolio Rebalancing

You manage a portfolio of two stocks, FedEx Corp. (ticker: FDX) and McDonald's Corp.

(ticker: MCD), that begins trading on 1/3/1995 with \$20,000 invested. To exploit the bene ts

of diversi cation, the investment is split equally between both stocks, i.e. \$10,000 are initially

allocated to each.

1

After setting up the portfolio, stock prices change and portfolio weights start

to deviate from the initial weights of 50% in each stock. Your task is to determine the trades

necessary for rebalancing the portfolio.

On Blackboard, you will nd a spreadsheet with daily prices for the two stocks from 1/3/1995

to 12/31/2014. The sheet also contains information on historical dividends and stock splits.

2

To

simplify the analysis, assume that the dividend dates in the spreadsheet are both the ex-dividend

date and the payment date.

3

The columns "Bid" and "Ask" are computed by adding and subtracting a percentage of the

daily closing price from that price itself { an input cell at the top of the spreadsheet controls

and ask prices that prevailed over the sample period, we will be able to investigate the e ect

of various hypothetical spreads on portfolio performance. For the baseline scenario, we will

assume a spread of 10 basis points (0.1%), which is realistic for a large company with a liquidly

A second source of transaction costs arises from brokerage fees. For retail investors, brokers

typically charge on a per-trade basis. A second input cell allows you to control the brokerage

fee. For the baseline scenario, we will assume a cost of \$5 per trade.

In addition to the data table, I have set up three tables in the spreadsheet that contain the

No solution has been posted yet.Be first to post the solution!
Other Related Questions
Mu