As with any investment, Paul is concerned about the risk of the investment as well as the… 1 answer below »

As with any investment, Paul is concerned about the risk of the investment as well as the potential return. More specifically, because the company holds a diversi- fled portfolio, Paul is concerned about the systematic risk of current and potential investments. One position the company currently holds is stock in FLIR Systems, Inc (FLIR). FLIR Systems designs, manufactures, and markets thermal imaging and infrared camera systems. Although better known for its military applications, the company has divisions that design products for other applications such as automotive night vision, commercial products that require minute temperature difference measurements, recreational marine usage, and firefighting.

Coy’II and Wyatt currently uses a commercial data vendor for information about its positions. Because of this, Paul is unsure exactly how the numbers provided are calculated. The data provider considers its methods proprietary, and it will not disclose how stock betas and other information are calculated. Paul is uncomfortable with not knowing exactly how these numbers are being computed and also believes that it could be less expen- sive to calculate the necessary statistics in-house. To explore this question, Paul has asked Joey to do the fol- lowing assignments:

QUESTIONS:

1. Go to finance.yahoo.com and download the ending monthly stock prices for FLIR Systems (FLIR) for the last 60 months. Be sure to use the adjusted closing price to account for any stock splits and dividend payments. Next, download the ending value of the S&P 500 index over the same period. For the his- torical risk-free rate, go to the St. Louis Federal Reserve website (www.stlouisfed.org) and find the three-month Treasury bill constant maturity rate. Download this file. What are the monthly returns, average monthly returns, and standard deviations for FLIR Systems stock, the three-month Treasury bill, and the S&P 500 for this period?

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