Assume that you recently graduated with an MBA degree and have just landed a job as a financial planner with Henry's Investment Inc. Your first assignment is to create a portfolio for a client by selecting two stocks on the market.

1.You need to complete the assignment by selecting ANY two stocks on Nasdaq and collect the data on Dec 31 each year (or the last trading day in that year):

Find out the stock price and dividend per share from the year 2014 to 2019.

1.Use the data you have collected to calculate annual returns for Company 1, Company 2, and the Market Index, and then calculate average returns over the five-year period.

1.Calculate the standard deviation of the returns for Company 1, Company 2, and the Market Index.

2.Construct a scatter diagram graph that shows Company 1's and Company 2's returns on the vertical axis and the Market Index's returns on the horizontal axis.

3.Estimate Company 1's and Company 2's betas as the slopes of regression lines with stock returns on the vertical axis (y-axis) and market return on the horizontal axis (x-axis).Are these betas consistent with your graph?

4.You need to determine the risk-free rate. What is average the long-term T-bill yield from 2014 to 2019? Assume that the market risk premium is 3.5%.What is the expected return on the market?Now use the SML equation to calculate the two companies' required returns.

5.If you formed a portfolio that consisted of 50% Company 1 stock and 50% Company 2 stock, what would be its beta and its required return?

6.Suppose an investor wants to include any one of the two stocks that you recommended in his or her portfolio.Stocks A, B, and C are currently in the portfolio, and their betas are 0.769, 0.985, and 1.423, respectively.Recommend a stock from the two stocks you've selected to her/him and calculate the new portfolio's required return if it consists of 25% of the company you've recommended, 15% of Stock A, 40% of Stock B, and 20% of Stock C.

7.If an investor's aversion to risk increased, would the risk premium on a high-beta stock increase more or less than that on a low-beta stock? Explain.