For the stock of Walmart and AT&T

a).calculate annual holding period returns for the most recent FIVE years (2016-2011)

b) For each stock, calculate its expected return and standard deviation over this sample period (2016-2011).

1.Combine your two assets into a risky portfolio of two stocks. What are the weights of each stock such that you have minimized the amount of risk of your portfolio? Is your portfolio diversified? How do you know?

2.Using the CAPM model, calculate the expected return of each individual security. (Lets assume a risk-free rate of 0.5% and a market risk premium of 6%)

3.Determine your valuation of the fair price for each stock using the dividend discount model. hint: use your expected return from CAPM as your required rate of return/market capitalization rate [r or k]. To determine the growth rate use g= ROE x (1- payout ratio).

4.Show the current market price of each stock and compare it to your own valuation of fair price.

c).Obviously your valuations of the two securities are not going to be exactly the same as their current market prices. Dont be discouraged if your valuations are far off. Think about the methodology we used, the assumptions/simplifications we made, the assumptions CAPM makes, the assumptions the dividend discount model makes. Provide a brief explanation of why your valuation may be different from its actual fair value.

d).Now lets imagine that you have full confidence in your valuations and you are a portfolio manager making the decision whether to buy/sell these two individual securities. Would you be inclined to hold either of these stocks based on the prices they are currently trading at? Look back through all of our discussions on technical analysis, fundamental analysis, market efficiency, pricing anomalies, macroeconomic analysis, behavioral finance, etc. provide as many potential explanations as you can as to why you might be inclined to buy/sell each of these stocks. Feel free to pull from historical price charts, recent news stories, earnings forecasts, analyst forecasts, etc. Anything goes. There is no correct answer, I just want to hear your thoughts on different factors that might affect your decision to invest in either of these securities.