Fundamentals of Investments

Problem Set Week #1 Instructions

The exercise below uses data found in an Excel workbook called "Week 1 Exercises.xls".Use the workbook to record your answers to the following questions.When you have completed the assignment, place it (workbook) in the appropriate Assignment folder on the course website.

1.You are given historical, monthly stock prices for 10 companies in the sheet labeled "Question 1 Data".Use this data to make the following calculations in the sheet labeled "Question 1 Calculations"

(a)Calculate the monthly returns for each company.You need only do this for one cell, and you can copy this calculation to all other cells.

(b)Using the monthly returns, calculate the mean return and standard deviation of returns for each company.

(c)Based on your preferences for risk, construct a portfolio based on these 10 stocks.You can take long (positive weights) or short positions (negative weights), but the sum of the weights must sum to 1. (Note that the summary statistics for these choices are graphed in the sheet labeled "Question 1 Graph".)

(d)Briefly explain your philosophy for the choices that made in part (d). (Low to Moderate Risk Tolerance)