1.Security B has a price of $100 and a beta of 0.8. The risk-free rate is 2% and the market risk premium is 5%.

(a) According to the CAPM, what return do investors expect on the security?

(b) Investors expect the security not to pay any dividend next year. At what price do investors expect the security to trade next year?

(c) At what price do investors expect the security to trade next year if the expected dividend next year is $1 instead of zero?

(d) Given that the beta is 0.8, stock B is less risky than the market. Therefore, we should expect that its standard deviation is lower than that of the market portfolio. Do you agree with this statement? Briefly explain why.

2. In this question, our goal is to do a simple mean-variance portfolio analysis. Please download historical price data for Amazon (AMZN), Meta (META), Hershey (HSY) and SPDR S&P 500 ETF (SPY) from Yahoo.Finance. We are going to use monthly data, starting from 1/1/2015 and finishing at 12/1/2019. We will use close price adjusted for splits and dividends. (Suppose you computed average returns and standard deviation of returns using monthly data. Then you can annualize average returns by multiplying monthly average by 12 and monthly standard deviation by √ 12. You do not need to do such adjustments for correlations and betas.)

(a) Compute returns series for AMZN, META, HSY and SPY. Based on that, compute standard deviations of returns.

(b) Compute CAPM betas for AMZN, META, HSY and SPY assuming that SPY is the market portfolio.

(c) Compute expected returns for AMZN, META and HSY under CAPM. Assume that that the market risk premium in 5.50% (annual) and use one-year Treasury rate as of December 2019 as the risk-free rate (you can find this information here; you can take the average of daily rates over the month of December 2019).

(d) Compare average realized excess returns on SPY2 between 1/1/2015 and 12/1/2019 with the market risk premium. Are they similar? Different? Briefly comment on any reasons why they can be different.

(e) Using your results from parts (a) and (c), plot an opportunity set, that is, the collection of all possible standard deviation-expected return combinations of AMZN and HSY. Mark the META’s position in your graph. (f) (20 points) Suppose that you have two alternatives. First, you can hold any portfolio of AMZN and HSY. Second, you can hold META. Which option do you prefer, assuming that you like high expected returns and dislike high standard deviation? If you think that the first option is preferable, suggest a portfolio that dominates META in the mean-variance sense. If you think that the second option is preferable, prove that META dominates any portfolio of AMZN and HSY. If you think that the two options cannot be ranked, please explain why.

PLEASE GIVE ME EVERY STEPS AND RESULTS. Make sure that you explain every step and give me the right answer