APOORVA BAKSHI STUDENT NUMBER: 0728229 ASSIGNMENT #3 BADM 4070 DE

This assignment required us to find prices of a bond fund, Canadian equity fund and an international fund over the past ten years. The bond fund used was Western Asset Mortgage Backed, Canadian equity fund was TD Canadian Value GIF II and the international fund was Japanese Equity C fund. You must find the monthly rate of return, the average rate of return and the standard deviation of the funds. This assignment also required us to find a correlation coefficient between the three funds. The first bond fund in this project is the Western Asset Mortgage Backed Sec A bond, over the past ten years, from 2003-2013. This bonds performance throughout the past ten years has been quite skeptical; looking at the rate of return of each month in the past 10 years there has not been much return on the bond. Many of the returns have been negative therefore, investors have lost money. Looking at the average rate of return out of the 10 years almost 5 years have had a negative average rate of return. The standard deviation measures the stocks volatility; volatility is the amount of uncertainty of the stock. It is also known as historical volatility and is used by investors to get an idea of the expected volatility. A high standard deviation suggests that the stock is less reliable whereas, a low standard deviation shows that the stocks are more reliable. The western Asset Mortgage stock seem to very reliable as the standard deviation over the past 10 years has not resulted in high numbers; 2003 was the only year in which the standard deviation was past 1.0 (refer to sheet 1 on excel spreadsheet). The second fund used in this project is TD Canadian Value GIF II, over the past 10 years, from 2003 2013. Looking at the rate of return one can say that this fund has been very versatile over the past ten years; some years it has had high returns however, it has also experienced some negative returns over the years. In the year of 2008 the returns were as low as -18% and this can be a major loss for the investors. This stock has done fairly well compared to Western Asset Mortgage and this is evident because the average rate of return has been positive over the past 10 years, except for the years of 2008 and 2011. One can say this stock has not been reliable over the past 10 years as the standard deviation has high positive numbers (refer to sheet2 on excel spreadsheet). However, it is possible that these numbers are inaccurate as the historical prices gathered showed that the stock was not traded in the middle of the month and only in the beginning and end. Hence, giving us the closing price of the first day of the month and the last day of the previous month. The third fund used in this project is the Investors Japanese Equity C fund, over the past 10 years. By looking at the rate of return for each month, one can say the stock has fluctuated into positive and negative returns; however the positive returns do not have a high percentage. Looking at the average rate of return it is evident that this stock did not give much return to the investors and in the past four years the return was negative. However, this stock has no price values for July 2013 and that is why the average rate of return for 2013 is quite high compared to 2012 (refer to sheet3 on excel spreadsheet). This stock is quite reliable as the standard deviation for all of the years is positive and quite high; the standard deviation for 2013 is based on only 6 months whereas the standard deviation for all the previous years is based on 12 months. The coefficient correlation of a data set shows the relationship of two different bonds, it goes from -1 to1; 1 being perfectly positively correlated and -1 being perfectly negatively correlated and 0 meaning no correlation at all. It shows the affect of the economy from on one bond compared to the affect on another throughout the past ten years. The correlation between Western Asset Mortgage Backed and TD Canadian Value GIF II is fairly correlated because the correlation is a little over 0.5 (refer to graph 1). TD Canadian Value GIF II and Japanese Equity C are not as correlated as the correlation coefficient is below 0.5 (refer to graph 2). Last but not least, the correlation between Western Asset Mortgage Backed and Japanese Equity C are not as correlated since correlation coefficient is very close to 0 (refer to sheet4 on excel spreadsheet & graph 3). For my portfolio I decided to invest 30% into Western Asset Mortgage which gave me an expected

rate of return of nearly 24% and the standard deviation close to 0.16. I chose to invest only 30% because the monthly rate of return over the past 10 years this stock had the most negative returns however it had a low standard deviation, meaning the stock would not be as reliable. 40% of my investment went into TD Canadian Value GIF II because this stock had the highest rate of returns but it also has the highest standard deviation, making the stock somewhat reliable. By investing 40% my expected rate of return was approximately 151% and the standard deviation of 5. The remaining 30% was invested into Japanese Equity C because this stock had fluctuations over the past 10 years, giving the investors some negative and some positive returns. The standard deviation was positive but not as high as TDs stock therefore, it was reliable but not as much. (Refer to sheet4 on excel spreadsheet). In conclusion, the three bonds that I had selected to examine were Western Asset Mortgage Backed, TD Canadian Value GIF II and Japanese Equity C. Western Asset had a lot of negative monthly returns and a low standard deviation making it unreliable hence, not a good investment. TD Canadian Value GIF II had the greatest amount of positive monthly returns and a high standard deviation compared to the Western Asset and Japanese Equity C therefore, making it a reliable investment. That is why most of my investment went into TD Canadian Value GIF II.

Graph 1
Average rate of return (%) 4 2 0 20032004200520062007200820092010201120122013 -2 -4 -6 Year Bond #1 Bond #2

Graph 2
4 Average rate of return (%) 3 2 1 0 -1 -2 -3 Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Bond #1 Bond #3

Graph 3
4 Average rate of return (%) 3 2 1 0 -1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -2 -3 -4 -5 Year Bond #2 Bond #3