Investments

Index Models: 

Download 61 months (January 2014 to January 2019) of monthly data for the SPDR S&P 500 Index ETF (symbol = SPY). Download 61 months (January 2014 to January 2019) of Apple Inc. data (symbol = AAPL) and 61 months (January 2014 to January 2019) of Berkshire Hathaway Inc. data (symbol = BRK-B). Download 61 months (January 2014 to January 2019) of iShares 1–3 Year Treasury Bond ETF data (symbol = SHY). Be sure to use end-of-month data! Construct the following on a spreadsheet:

1. Calculate 60 months of returns for the SPDR S&P 500 Index ETF, Apple, Berkshire Hathaway, and the iShares 1–3 Year Treasury Bond ETF. (Please compute simple monthly returns not continuously compounded returns.) Use February 2014 to January 2019. Note this means you need price data for January 2014. On the answer sheet report the average monthly returns for the SPDR S&P 500 Index ETF, Apple, Berkshire Hathaway, and the iShares 1–3 Year Treasury Bond ETF.

2. Calculate excess returns for the SPDR S&P 500 Index ETF, Apple and Berkshire Hathaway. Use the monthly returns on the iShares 1–3 Year Treasury Bond ETF as your monthly risk–free return. On the answer sheet report the average monthly excess returns for the SPDR S&P 500 Index ETF, Apple and Berkshire Hathaway.

3. Regress excess Apple returns on the excess SPDR S&P 500 Index ETF returns and report, on the answer sheet, α, β, the r-square and whether α and β are different from zero at the 10% level of significance. Briefly explain your inference.

4. Use equation 8.10 to decompose total risk for Apple into systematic risk and firm-specific risk. That is, calculate total risk, systematic risk and firm-specific risk for Apple.

5. Regress excess Berkshire Hathaway returns on the excess SPDR S&P 500 Index ETF returns and report, on the answer sheet, α, β, the r-square and whether α and β are different from zero at the 10% level of significance. Briefly explain your inference.

6. Use equation 8.10 to decompose total risk for Berkshire Hathaway into systematic risk and firm-specific risk. That is, calculate total risk, systematic risk and firm-specific risk for Berkshire Hathaway.

7. Use equation 8.10 to estimate the covariance and correlation of Apple and Berkshire Hathaway excess returns.