1. Stocks 1 and 2 are selling for $100 and $125, respectively. You own 200 shares of stock 1 and 100 shares of stock 2. The weekly returns on these stocks have means of 0.001 and 0.0015, respectively, and standard deviations of 0.03 and 0.04, respectively. Their weekly returns have a correlation of 0.35. Find the correlation matrix of the weekly returns on the two stocks and the mean and standard deviation of the weekly returns on the portfolio.

2. Suppose that the riskless rate of return is 4 % and the expected market return is 12 %. The standard deviation of the market return is 11 %. Suppose as well that the covariance of the return on Stock A with the market return is 165 %^2

(a) What is the beta of Stock A?

(b) What is the expected return on Stock A?

(c) If the variance of the return on Stock A is 220 %^2, what percentage of this variance is due to market risk?

3. What is the beta of a portfolio if the expected return on the portfolio is E(RP ) = 15 %, the risk-free rate is f = 6 %, and the expected return on the market is E(RM) = 12 %? Make the usual CAPM assumptions including that the portfolio alpha is zero

4. As an analyst, you have constructed 2 possible portfolios. Both portfolios have the same beta and expected return, but portfolio 1 was constructed with only technology companies whereas portfolio 2 was constructed using technology, healthcare, energy, consumer products, and metals and mining companies. Should you be impartial to which portfolio you invest in? Explain why or why not