Question
2. The followings are weekly stock returns of Walmart (Beta=0.47) and nVidia (Beta=2.74) in the past four weeks. [Hint: Do we need to correct for
2. The followings are weekly stock returns of Walmart (Beta=0.47) and nVidia (Beta=2.74) in the past four weeks. [Hint: Do we need to correct for selection bias?] Week of Nov. 12 Nov. 5 Oct. 29 Oct.22 Walmart 3.60% 7.46% -4.16% -2.43% nVidia 11.99% -5.05% 8.30% 6.39% (1) Find the expected return on both companies common stocks using the four weekly returns. (10 points) (2) Find the standard deviation of both companies weekly stock returns. (10 points) (3) Find the correlation coefficient between the two companies common stocks. [CH11 Slide 26] (10 points) (4) Fill out the following table using answers to (1), (2), and (3). (10 points) Portfolio Weights: Walmart Portfolio Weights: nVidia Portfolio Expected Return Portfolio Standard Deviation Portfolio Beta 100% 0% 90% 10% 80% 20% 70% 30% 60% 40% 50% 50% 40% 60% 30% 70% 20% 80% 10% 90% 0% 100% (5) Plot Portfolio Expected Return and Portfolio Standard Deviation in (4) and mark the efficient frontier. [e.g., CH11 Slide 30] (20 points) (6) Based on expected returns of the two companies, betas of the two companies, and the reward-to-risk ratio [CH12 Slide31], find the risk-free rate. (10 points)
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