Above are the monthly holding period returns for ELF, PXY and the market as well as their opening and closing values. Use this information to answer the following questions.

a.For ELF, PXY and MKT, what is the average monthly holding period return?

b.For ELF, PXY and MKT, what are:

i.the annual holding period returns; and

ii. the standard deviations of the monthly holding period returns?

c.Calculate the covariance of ELF and PXY over the year.

d.Calculate the expected portfolio return and risk if

1. 20% of wealth is invested in ELF and 80% in PXY
2. 70% of wealth is invested in ELF and 30% in PXY

e.Plot ELF, PXY and MKT on a risk / return graph as well as the two portfolios in (d).

Which asset or combination of assets would you invest in and why

If the 3 year government bond rate is 2.9%, use the information and findings from above for ELF, PXY and MKT to complete the following questions.

f.Calculate the beta for both companies and their returns as determined by the CAPM.

g.Construct the Security Market Line (SML) showing where ELF, PXY and MKT lie. How does this compare to your findings in (b) above

h.What shortcomings can you see if you base your portfolio selection on CAPM?