Fall 2024

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MGFC35H3 - Assignment 2 (Total 30 points)

Due: Dec 6 at 11:59 pm on Quercus

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- This is an individual assignment.

- The assignments are to be submitted on Quercus via file upload in the Assignments section.

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Question 1 (Total 20 points)

1. Use the monthly dividend-adjusted closing prices for the most recent 4 years for

Abercrombie & Fitch (ANF) and the closing level of the S&P 500 Index over the same period

in Quercus for the below exercise.

a. Calculate the 4-month moving average of both the stock and the S&P 500 over time. For

each series, use Excel to plot the moving average against the actual level of the stock price

or index. Examine the instances where the moving average and price series cross. Is the

stock more or less likely to increase when the price crosses through the moving average?

Does it matter whether the price crosses the moving average from above or below? How

reliable would an investment rule based on moving averages be? Perform your analysis for

both the stock price and the S&P 500.

b. Calculate and plot the relative strength of the stock compared to the S&P 500 over the

sample period. Find all instances in which relative strength of the stock increases by more

than 10% and all those instances in which relative strength of the stock decreases by more

than 10%. Is the stock more or less likely to outperform the S&P in the following 2 months

when relative strength has increased or to underperform when relative strength has

decreased? In other words, does relative strength continue? How reliable would an

investment rule based on relative strength be?

Fall 2024

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Question 2 (Total 10 points)

This excerpt comes from an article titled “Eagle Eyes High-Coupon Callable Corporates” in the January 20,

1992, issue of BondWeek, p. 7:

“If the bond market rallies further, Eagle Asset Management may take profits, trading $8 million

of seven-to 10-year Treasuries for high-coupon single-A industrials that are callable in two to four

years according to Joseph Blanton, Senior V.P. He thinks a further rally is unlikely, however.

Eagle has already sold seven-to 10-year Treasuries to buy $25 million of high-coupon, single-A

nonbank financial credits. It made the move to cut the duration of its $160 million fixed income

portfolio from 3.7 to 2.5 years, substantially lower than the 3.3-year duration of its bogey . . .

because it thinks the bond rally has run its course. . . .

Blanton said he likes single-A industrials and financials with 9 1/2−10% coupons because these are

selling at wide spreads of about 100−150 basis points off Treasuries.”

What types of active portfolio strategies are being pursued by Eagle Asset Management?

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