(1800 words maximum for Part 1) Answer ALL the questions. Notes: A NEW data set has been provided to you for this supplementary coursework.

You are given price information on 10 stocks, the FTSE All Share Index, and risk-free rate (UK T- bill rate) from 01/2013 to 07/2017. Data can be accessed in the Excel spread sheet Data

_coursework_supplemetary.csv. You are required to answer the following questions independently.

Question 1. (15 marks in total) (a) Calculate each stocks average monthly return, its return variance and standard deviation and beta over the period 01/2013 to 07/2017, using the price information of the FTSE All Share Index as a proxy for market portfolio. Summarize your results in a table, and briefly describe how these are calculated (Please do not use Excel functions as your explanation). (9 marks) (b) Explain why some stocks have betas greater than 1 while others are below 1 (you may do some research on firm backgrounds and their businesses). (6 marks)

Question 2. (25 marks in total) (a) Construct three types of portfolios. Portfolio A consists of any 3 of the stocks, Portfolio B consists of any 6 of the stocks, and Portfolio C consists of all 10 stocks. Assuming that each stock has equal weight in the portfolio, calculate Portfolio A, B, and Cs average monthly returns, return variances and standard deviations, and betas. Summarize your results in a table, and briefly describe how these are calculated (Please do not use Excel functions as your explanation). (8 marks) (b) Which of the Portfolios A, B, and C, has the highest return standard deviation? Does this portfolio have the highest average monthly return? Can you explain why? (5 marks) (c) Is Portfolio Bs return standard deviation higher than any of its 6 component stocks return standard deviations? Why? (6 marks) (d) Should investors invest their money in the component stocks or in the portfolio? Please provide justifications for your answer. (6 marks)