(Regression, Sharpe, Jensen’s alpha, Treynor for portfolio) Using the data from exercises 10 and 11, assume you invested in a portfolio composed of 30% IBM stock and 70% FedEx stock.

a. Compute the excess return of the portfolio.

b. Compute the portfolio βP. Show three different ways to calculate the portfolio βP:

• By using Excel’s Slope function.

• By using the formula β P P Co M M = v r( ) , / r Var( ) r .

• By averaging the βs of the two portfolio components IBM and FedEx.

c. Compute the portfolio αP. Show two different ways to calculate the portfolio αP:

• By using Excel’s Intercept function.

• By taking the weighted average of the αs of the two portfolio components IBM and FedEx.

d. Compute the portfolio R2

, and compare it to the average R2 of IBM and FedEx. What can you conclude about the diversification advantages of the portfolio?

e. Calculate the Sharpe ratio, Jensen’s alpha, and Treynor ratio for the portfolio.