a. You have been given the monthly prices for MacDonalds stock and the SPY (an ETF that tracks the S\&P 500 index) in the attached excel file for the last 5 years. i. Compute the monthly returns for both MacDonalds and SPY ii. Compute the arithmetic and geometric average returns for MacDonalds and SPY. Which of these two average returns is more appropriate for describing the performance of MacDonalds and SPY over the investment period? iii. Compute the standard deviation of the returns for MacDonalds and for the SPY ETF iv. Compute the covariance between the returns on MacDonalds stock and the SPY ETF v. Compute the correlation co-efficient between the two assets vi. Assume the SPY ETF is the proxy for the market portfolio and compute the beta for MacDonalds. vii. What does the beta you have computed signify and how do you interpret it? viii. Would you conclude that MacDonalds is a defensive or cyclical stock based on the beta estimate? b. Consider the following assets with the following potential returns under the economic scenarios given: i. Compute the expected return, standard deviation, covariance, and correlation coefficient of Assets A \& B. ii. Form a portfolio by putting half the allocation ( 50% weight in each of A and B ) to form a portfolio of 2 risky assets and compute the expected return and standard deviation of the portfolio of the two risky assets. What conclusions can we draw about diversification from your calculations? \begin{tabular}{cccc} & Date & MCD Adj Close & SPY Adj Close \\ 1 & 11/1/2017 & 149.24 & 243.19 \\ 2 & 12/1/2017 & 153.78 & 244.89 \\ 3 & 1/1/2018 & 152.90 & 260.01 \\ 4 & 2/1/2018 & 140.93 & 250.56 \\ 5 & 3/1/2018 & 140.60 & 242.72 \\ 6 & 4/1/2018 & 150.54 & 244.95 \\ 7 & 5/1/2018 & 143.86 & 250.90 \\ 8 & 6/1/2018 & 140.88 & 251.22 \\ 9 & 7/1/2018 & 142.54 & 261.69 \\ 10 & 8/1/2018 & 146.79 & 270.05 \\ 11 & 9/1/2018 & 152.31 & 270.43 \\ 12 & 10/1/2018 & 161.06 & 252.88 \\ 13 & 11/1/2018 & 171.63 & 257.57 \\ 14 & 12/1/2018 & 162.67 & 233.53 \\ 15 & 1/1/2019 & 163.78 & 253.70 \\ 16 & 2/1/2019 & 168.41 & 261.92 \\ 17 & 3/1/2019 & 175.07 & 265.49 \\ 18 & 4/1/2019 & 182.14 & 277.56 \\ 19 & 5/1/2019 & 182.79 & 259.86 \\ 20 & 6/1/2019 & 192.56 & 276.59 \\ 21 & 7/1/2019 & 195.40 & 282.14 \\ 22 & 8/1/2019 & 202.12 & 277.42 \\ 23 & 9/1/2019 & 200.15 & 281.52 \\ 24 & 10/1/2019 & 183.36 & 289.07 \\ 25 & 11/1/2019 & 181.30 & 299.53 \\ 26 & 12/1/2019 & 185.39 & 306.73 \\ 27 & 1/1/2020 & 200.74 & 308.11 \\ 28 & 2/1/2020 & 182.17 & 283.72 \\ 29 & 3/1/2020 & 156.10 & 246.84 \\ 30 & 4/1/2020 & 177.07 & 279.82 \\ 31 & 5/1/2020 & 175.90 & 293.15 \\ 32 & 6/1/2020 & 175.31 & 297.04 \\ 33 & 7/1/2020 & 184.63 & 315.92 \\ 34 & 8/1/2020 & 202.92 & 337.97 \\ 35 & 9/1/2020 & 209.81 & 324.02 \\ 36 & 10/1/2020 & 203.61 & 317.20 \\ 37 & 11/1/2020 & 207.85 & 351.71 \\ 38 & 12/1/2020 & 206.34 & 363.19 \\ 39 & 1/1/2021 & 199.86 & 361.02 \\ 40 & 2/1/2021 & 198.22 & 371.06 \\ 41 & 3/1/2021 & 216.86 & 386.64 \\ 42 & 4/1/2021 & 228.41 & 408.43 \\ 43 & 5/1/2021 & 226.29 & 411.11 \\ 44 & 6/1/2021 & 224.72 & 418.96 \\ 45 & 7/1/2021 & 236.12 & 430.59 \\ 46 & 8/1/2021 & 231.01 & 443.41 \\ 47 & 9/1/2021 & 235.85 & 421.39 \\ 48 & 10/1/2021 & 240.19 & 452.40 \\ 49 & 11/1/2021 & 239.26 & 448.77 \\ 50 & 12/1/2021 & 263.67 & 467.88 \\ 51 & 1/1/2022 & 255.20 & 444.76 \\ 52 & 2/1/2022 & 240.76 & 431.63 \\ 53 & 3/1/2022 & 244.58 & 446.47 \\ 54 & 4/1/2022 & 246.44 & 408.55 \\ 55 & 5/1/2022 & 249.45 & 409.47 \\ 56 & 6/1/2022 & 244.18 & 374.09 \\ 57 & 7/1/2022 & 261.94 & 410.30 \\ 58 & 8/1/2022 & 250.91 & 393.56 \\ 59 & 9/1/2022 & 230.74 & 355.72 \\ 60 & 10/1/2022 & 272.66 & 386.21 \\ \hline \end{tabular}