1. Using information found in the attached excel file, how does the risk of Stock D compare to the risk of the Market?

a. Stock D is twice as risky as the market, denoted by a calculated Beta of 2.0, which is twice as risky as the market beta of 1.0

b. Stock D is a perfect hedge against market risk, denoted by a calculated Beta of -1.0; This stock will rise 1 when the market falls 1.

c. Stock D carries the same risk as the market; Both stock B and the market have a beta of 1.0

d. None of the above

e. Stock D is half as risky as the market, denoted by a calculated Beta of 0.5, which is half as risky as the market beta of 1.0

2. The Beta of the portfolio is:

3. Calculate the volatility (standard deviation) of Portfolio.

4. If an investor wishes to minimize volatility, the investor should

a. Hold a diversified portfolio of 500 stocks or more

b. Hold a single stock

c. Increase holdings from a single stock to a portfolio of 5 stocks

d. It is not possible to reduce volatility - stocks are inherently volatile

e. none of the above

20% Weight Time Period # Fimm A 1 2 3 4 5 6 0.037 1 7 8 9 10 11 12 13 14 15 16 17 5 5 0.193 -0.439 0.348 0.871 0.912 0.532 0.556 0.544 0.546 1.020 0.801 0.081 -0.461 -0.104 -0.389 0.626 -0.406 0.800 0.002 0.504 -0.388 0.564 -0.198 -0.467 1.119 0.008 0.531 0.030 2 1 5 7 1 2 S&P Retum 0.334 -0.145 0.143 0.316 0.178 -0.014 0.374 0.171 -0.059 0.394 0.100 -0.045 0.067 0.083 -0.073 0.266 -0.067 0.139 -0.017 0.379 0.105 0.034 0.253 0.150 0.297 -0.081 -0.036 -0.180 0.318 0.048 -0.098 0.212 0.004 0.021 0.215 0.190 0.181 -0.127 0.106 -0.221 0.184 -0.092 -0.007 -0.098 -0.155 0.117 -0.095 0.341 0.225 0.066 -0.124 0.330 -0.091 -0.221 0.058 0.257 0.270 0.016 0.292 -0.029 0.218 1.064 0.477 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 20% Firm B 0.219 -0.627 0.470 0.868 0.499 0.168 1.014 0.095 0.183 0.359 0.288 -0.223 0.198 -0.235 -0.375 0.479 -0.406 0.324 0.201 0.535 0.281 0.369 0.685 0.145 0.512 0.112 0.074 -0.086 0.331 0.298 -0.586 0.526 0.000 0.268 0.284 0.302 0.377 -0.174 0.173 -0.519 0.621 -0.161 -0.433 -0.025 -0.198 0.067 -0.226 0.320 0.211 -0.133 -0.328 0.358 -0.253 -0.790 0.453 0.192 0.209 0.395 0.582 0.101 30% 30% Fim C Firm D T-Bill 0.965 0.604 0.036 -0.757 -0.471 0.038 0.379 0.378 0.040 -0.192 0.502 0.036 0.694 0.364 0.036 -0.671 -0.064 0.038 0.023 0.698 0.037 0.678 0.213 -0.645 -0.092 0.034 0.952 0.744 0.035 0.442 0.059 0.029 -0.522 -0.233 0.025 0.515 0.056 0.024 0.014 0.099 0.027 0.363 -0.245 0.028 0.840 0.352 0.230 -0.237 0.026 0.742 0.332 0.045 -0.343 -0.207 0.041 0.274 0.870 0.040 0.592 0.112 0.043 -0.079 0.080 0.045 -0.274 0.532 0.046 -0.476 0.230 0.041 1.038 0.673 0.043 -0.502 -0.072 0.021 0.331 0.014 0.021 -0.040 -0.403 0.021 -0.085 0.716 0.016 -0.575 0.177 0.022 -0.402 -0.367 0.017 0.123 0.451 0.031 -0.503 -0.020 0.020 0.188 0.077 0.034 0.305 0.253 0.019 0.662 0.430 0.033 0.128 0.211 0.031 0.481 -0.193 0.032 0.571 0.070 0.034 -0.022 -0.369 0.011 0.229 0.426 0.008 -0.686 -0.350 0.014 0.163 -0.119 0.011 0.553 -0.308 0.016 -0.438 0.016 0.058 0.184 0.010 0.296 -0.291 0.009 0.260 0.543 0.011 -0.261 0.341 0.013 -0.453 0.011 0.016 -0.776 -0.274 0.011 -0.258 0.556 0.011 0.241 -0.121 0.014 -0.092 -0.576 0.016 0.257 -0.067 0.024 -0.240 0.335 0.023 0.751 0.619 0.022 0.042 0.045 0.023 0.059 0.680 0.023 -0.525 -0.162 Portfolio Kelley 0.553 -0.582 0.391 0.441 0.600 -0.081 0.530 0.395 -0.075 0.785 0.368 -0.255 0.118 -0.034 -0.117 0.579 -0.164 0.547 -0.124 0.551 0.190 0.187 0.175 -0.138 0.840 -0.148 0.224 -0.107 0.468 0.036 -0.306 0.276 -0.020 0.117 0.356 0.327 0.235 0.113 0.208 -0.153 0.438 -0.478 -0.050 0.006 -0.329 0.171 -0.066 0.524 0.198 -0.083 -0.370 0.108 0.035 -0.561 0.225 0.013 0.480 0.051 0.292 -0.050 5 1 5 0.006 0.212 -0.005 0.684 -0.082 0.661 -0.306 0.288 0.307 -0.093 0.339 0.587 -0.672 0.117 -0.312 -0.816 0.425 -0.108 1.097 0.659 0.381 0.053 -0.266 0.249 -1.015 0.385 -0.266 0.136 -0.272 -0.231 0.677 3 7 3 3 56 57 58 59 60 1 0.023 0.077 0.026 0.131 Average Return Standard Deviation 5 Beta 0.086 0.169 1 0.205 0.499 0.139 0.369 0.130 0.354 0.480 0.011 (HINT: useful Excel functions include AVERAGE, STDEV, SLOPE) The most current T-Bill is selling for $980.39. See Lecture 15 powerpoints for portfolio weights. Fill in Column H with the weighted averages of the returns of the stocks in the portfolio. 20% Weight Time Period # Fimm A 1 2 3 4 5 6 0.037 1 7 8 9 10 11 12 13 14 15 16 17 5 5 0.193 -0.439 0.348 0.871 0.912 0.532 0.556 0.544 0.546 1.020 0.801 0.081 -0.461 -0.104 -0.389 0.626 -0.406 0.800 0.002 0.504 -0.388 0.564 -0.198 -0.467 1.119 0.008 0.531 0.030 2 1 5 7 1 2 S&P Retum 0.334 -0.145 0.143 0.316 0.178 -0.014 0.374 0.171 -0.059 0.394 0.100 -0.045 0.067 0.083 -0.073 0.266 -0.067 0.139 -0.017 0.379 0.105 0.034 0.253 0.150 0.297 -0.081 -0.036 -0.180 0.318 0.048 -0.098 0.212 0.004 0.021 0.215 0.190 0.181 -0.127 0.106 -0.221 0.184 -0.092 -0.007 -0.098 -0.155 0.117 -0.095 0.341 0.225 0.066 -0.124 0.330 -0.091 -0.221 0.058 0.257 0.270 0.016 0.292 -0.029 0.218 1.064 0.477 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 20% Firm B 0.219 -0.627 0.470 0.868 0.499 0.168 1.014 0.095 0.183 0.359 0.288 -0.223 0.198 -0.235 -0.375 0.479 -0.406 0.324 0.201 0.535 0.281 0.369 0.685 0.145 0.512 0.112 0.074 -0.086 0.331 0.298 -0.586 0.526 0.000 0.268 0.284 0.302 0.377 -0.174 0.173 -0.519 0.621 -0.161 -0.433 -0.025 -0.198 0.067 -0.226 0.320 0.211 -0.133 -0.328 0.358 -0.253 -0.790 0.453 0.192 0.209 0.395 0.582 0.101 30% 30% Fim C Firm D T-Bill 0.965 0.604 0.036 -0.757 -0.471 0.038 0.379 0.378 0.040 -0.192 0.502 0.036 0.694 0.364 0.036 -0.671 -0.064 0.038 0.023 0.698 0.037 0.678 0.213 -0.645 -0.092 0.034 0.952 0.744 0.035 0.442 0.059 0.029 -0.522 -0.233 0.025 0.515 0.056 0.024 0.014 0.099 0.027 0.363 -0.245 0.028 0.840 0.352 0.230 -0.237 0.026 0.742 0.332 0.045 -0.343 -0.207 0.041 0.274 0.870 0.040 0.592 0.112 0.043 -0.079 0.080 0.045 -0.274 0.532 0.046 -0.476 0.230 0.041 1.038 0.673 0.043 -0.502 -0.072 0.021 0.331 0.014 0.021 -0.040 -0.403 0.021 -0.085 0.716 0.016 -0.575 0.177 0.022 -0.402 -0.367 0.017 0.123 0.451 0.031 -0.503 -0.020 0.020 0.188 0.077 0.034 0.305 0.253 0.019 0.662 0.430 0.033 0.128 0.211 0.031 0.481 -0.193 0.032 0.571 0.070 0.034 -0.022 -0.369 0.011 0.229 0.426 0.008 -0.686 -0.350 0.014 0.163 -0.119 0.011 0.553 -0.308 0.016 -0.438 0.016 0.058 0.184 0.010 0.296 -0.291 0.009 0.260 0.543 0.011 -0.261 0.341 0.013 -0.453 0.011 0.016 -0.776 -0.274 0.011 -0.258 0.556 0.011 0.241 -0.121 0.014 -0.092 -0.576 0.016 0.257 -0.067 0.024 -0.240 0.335 0.023 0.751 0.619 0.022 0.042 0.045 0.023 0.059 0.680 0.023 -0.525 -0.162 Portfolio Kelley 0.553 -0.582 0.391 0.441 0.600 -0.081 0.530 0.395 -0.075 0.785 0.368 -0.255 0.118 -0.034 -0.117 0.579 -0.164 0.547 -0.124 0.551 0.190 0.187 0.175 -0.138 0.840 -0.148 0.224 -0.107 0.468 0.036 -0.306 0.276 -0.020 0.117 0.356 0.327 0.235 0.113 0.208 -0.153 0.438 -0.478 -0.050 0.006 -0.329 0.171 -0.066 0.524 0.198 -0.083 -0.370 0.108 0.035 -0.561 0.225 0.013 0.480 0.051 0.292 -0.050 5 1 5 0.006 0.212 -0.005 0.684 -0.082 0.661 -0.306 0.288 0.307 -0.093 0.339 0.587 -0.672 0.117 -0.312 -0.816 0.425 -0.108 1.097 0.659 0.381 0.053 -0.266 0.249 -1.015 0.385 -0.266 0.136 -0.272 -0.231 0.677 3 7 3 3 56 57 58 59 60 1 0.023 0.077 0.026 0.131 Average Return Standard Deviation 5 Beta 0.086 0.169 1 0.205 0.499 0.139 0.369 0.130 0.354 0.480 0.011 (HINT: useful Excel functions include AVERAGE, STDEV, SLOPE) The most current T-Bill is selling for $980.39. See Lecture 15 powerpoints for portfolio weights. Fill in Column H with the weighted averages of the returns of the stocks in the portfolio