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MTRM6040-Assignment 1-Consider the daily simple returns

MTRM6040Assignment 1Due: 11.10.2016Note:All tests are based on the 5% significance levelDo not hand in computer output. Use cut-and-paste to summarize the output. Thereis no need to keep many digits in an answer.This is a group assignmentQuestion 1Consider the daily simple returns of Starbucks (SBUX) stock, CRSP value-weighted index(VW), CRSP equal-weighted index (EW), and the S&P composite index (SP) from January 3,2007 to December 31, 2015.Returns of the three indexes include dividends. The data are in the file dsbux3dx.txt and thecolumns show permno of sbux, date, sbux, vwretd, ewretd, and sprtrn respectively, with thelast four columns showing the simple returns.(a)Compute the sample mean, standard deviation, skewness, excess kurtosis, minimum,and maximum of each simple return series.(b)Obtain the empirical density function of the simple returns of Starbucks stock. Arethe daily simple returns normally distributed? Perform a normality test to justify youranswer.(c)Transform the simple returns to log returns. Compute the sample mean, standarddeviation, skewness, excess kurtosis, minimum, and maximum of each log return series.(d)Test the null hypothesis that the mean of the log returns of Starbucks stock is zero. Dothe same test for S&P composite index.(e)Obtain the empirical density plots for the daily log returns of Starbucks stock and thatof the value-weighted index.Question 2The daily log returns on a stock are independent and normally distributed with mean 0.001and standard deviation 0.015. Suppose you buy $1000 worth of this stock.(i)What is the probability that after one trading day your investment is worth less than$990?(ii)What is the probability that after five trading days your investment is worth less than$990?Question 3Suppose the price of a stock at times 1, 2, and 3 are P1 = 95P2 = 103Find r3 ( 2 )Question 4The prices and dividends of a stock are given in the table below.1234t52545359Pt0. is R2 ?(ii)What is R4 ( 3) ?(iii)What is r3 ?andP3 = 98

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