Question 1: (6 pages)

Capital asset pricing model (CAPM) is a widely accepted, though controversial, theory of asset pricing in the capital market. According to CAPM, the expected return of any asset in the capital market is a linear function of the expected return on the whole market and the expected return of the risk-free rate. Mathematically, the model is stated as per Equation 1:

E(Re) = E(RFR) + β *E(Rm – RFR)   (1) 

Where E(Re) is the expected rate of return on a specific asset, E(RFR) is the expected risk-free rate, β is the sensitivity of the stock return with respect to the overall market return, and E(Rm – RFR) is the expected capital market risk premium.

Empirical verification of CAPM is done by running a regression model of historical returns of stocks against historical returns of the overall market.

In this assignment, your professor will assign you the stock of a publicly traded company to conduct the following:

  1. Download      the stock’s last 10 years monthly price history from yahoo finance or      other sources.
  2. Select      a broad stock market index, such as the S&P 500 Index or the Russell      3000 Index, etc. and download its last 10 years of monthly price history.
  3. Use      the adjusted closing prices of the stock and the index and calculate the      monthly rate of return of each.
  4. Consider      the stock’s monthly return as the dependent variable and the index’s      monthly return as the independent variable and run the following      regression model:

Re = α + β*Rm + ε  (2)

Where Re is the realized monthly rate of return of your stock, Rm is the realized monthly rate of return on the overall capital market, and ε is the error term.

  1. After estimating the regression coefficients of equation (2) through the      ordinary least square (OLS) method, conduct a test of hypothesis and      determine if the estimates of α and β are statistically      significant at the 5% level and report their t statistics and p      values.
  2. Determine      if the F value for the      correlation coefficient is statistically significant at the 5% level.
  3. What      is your interpretation of the R-square value? Explain to what extent your      regression estimates can predict future return of your stock against your      index’s movements.
  4. What      is the estimate of RFR?
  5. Calculate      the value of the error term for each year and construct the histogram of      the error terms.
  6. Using      the Explore feature in SPSS (in Excel: Data Analysis, Regression, Normal      Probability Plots), conduct a test for normality of the error terms and      exhibit the normality plot.
  7. Does      the result of the test for normality of the error terms affect the      validity of your regression model? Explain.
  8. Present      an APA-formatted write-up of your finding in one paragraph. 

Question 2: (4 pages)

In a 4 pages paper based on your internship course experience and the learning objectives achieved during the course, review your internship experience successes and challenges leading to growth. You should demonstrate in your paper a description of your professional portfolio and include any evidence of

accomplishment and skill development or recognition that you have acquired this session and how it will contribute to your portfolio. 

(I was a marketing specialist at an education consulting company. This company recruit international students for U.S. universities. My daily job was to do Google AdWords, analyze competitor’s marketing strategies, write blog posts to boost SEO results, etc.) 

Provide at least two (2) peer-reviewed sources.