Case Name :      Alex Sharpe’s Portfolio

Authors :           Colette Southam

Source :             Ivey Publishing

Case ID :            908N20

Discipline :        Finance

Case Length :    04 pages

Solution Sample availability : YES

Plagiarism : NO (100% Original work)

Alex Sharpe’s Portfolio provides an introduction to the Capital Asset Pricing Model (CAPM), portfolio diversification and risk management. Sharpe currently holds the Vanguard 500 Index Fund, but is considering a more active management strategy. Students must assess the risk of the two stocks she is considering adding to her portfolio. Students are provided with monthly stock returns and must calculate the standard deviations of the individual stocks and of the portfolios when one of the stocks is added to it. Students must calculate the stock’s beta using regression and will learn that beta is the appropriate measure of risk to use in decision making since risk-averse investors do not hold stocks in isolation.