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a. (5 marks) Design an Excel financial model that can help to evaluate this investment plan. Marks will be allocated for the presentation and clarity of your model (e.g., if there are clear headings, clear arrangement for input cells, appropriate use of colors, have some degree of flexibility, generate warning messages for wrong user inputs, etc.). The Excel financial model should enable you to consider the investment plan and answer the following questions: b. (3 marks) For each stock, show the monthly stock returns. c. (3 marks) Based on the responses in part (b), calculate the average monthly stock returns and standard deviation for each stock. d. (2 marks) Calculate the correlation of monthly stock returns between each pair of stocks. e. (4 marks) Suppose that you invest 20% in Apple Inc., 50% in Rio Tinto Ltd and 30% in Cathay Pacific Airlines. Calculate the portfolio expected return, variance and standard deviation. f. (4 marks) How does the expected return and standard deviation change if you decide to invest 60% in Rio Tinto Ltd, 30% in Apple Inc. and 10% in Cathay Pacific Airlines? Explain your answers. g. (5 marks) Find the weights of Apple Inc., Rio Tinto Ltd and Cathay Pacific Airlines that will provide a monthly return of 0.5% with the lowest level of risk. h. (5 marks) Plot a scatter diagram showing the portfolios from parts (e), (f) and (g), with the X-axis displaying standard deviation and the Y-axis displaying monthly returns. i. (4 marks) If the monthly risk-free rate is 0.1%, estimate the Sharpe ratio for the portfolios mentioned in parts (e), (f) and (g) and highlight the highest Sharpe ratio using conditional formatting.

Question 3 (35 marks) You are planning to invest in the following stocks: Rows 8 to 78 show the monthly closing prices of the stocks between 2010 and 2015. Rio Tinto Ltd (RIO.AX) Date Jan-2010 68.00 Feb-2010 70.50 Mar-2010 78.40 Apr-2010 72.10 May-2010 67.14 Jun-2010 66.66 Jul-2010 70.61 Aug-2010 70.09 Sep-2010 76.77 Oct-2010 82.69 Nov-2010 82.21 Dec-2010 85.47 Jan-2011 84.05 Feb-2011 84.93 Mar-2011 84.75 Apr-2011 82.21 May-2011 81.50 Jun-2011 82.99 Jul-2011 80.00 Aug-2011 72.52 Sep-2011 61.80 Oct-2011 69.21 Nov-2011 62.95 Dec-2011 60.30 Jan-2012 69.16 Feb-2012 67.45 Apple Inc. (AAPL) 27.44 29.23 33.57 37.30 36.70 35.93 36.75 34.73 40.54 43.00 44.45 46.08 48.47 50.46 49.79 50.02 49.69 47.95 55.78 54.98 54.47 57.83 54.60 57.86 65.21 77.49 Cathay Pacific Airlines (0293.HK) 12.80 14.42 16.36 16.44 15.42 15.50 17.30 19.18 21.05 20.85 22.65 21.45 19.64 18.10 18.64 19.38 18.64 18.02 18.06 15.68 12.80 14.30 13.56 13.32 15.36 15.40 The monthly data is collected from Yahoo Finance on 17th of December 2015. Ignore dividends for this questio Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012 Aug-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Jan-2013 Feb-2013 Mar-2013 Apr-2013 May-2013 Jun-2013 Jul-2013 Aug-2013 Sep-2013 Oct-2013 Nov-2013 Dec-2013 Jan-2014 Feb-2014 Mar-2014 Apr-2014 May-2014 Jun-2014 Jul-2014 Aug-2014 Sep-2014 Oct-2014 Nov-2014 65.40 66.35 56.86 56.50 53.20 49.24 53.36 56.94 58.75 66.01 66.36 67.05 57.20 55.80 55.18 52.37 57.51 58.30 61.74 63.99 66.06 68.18 65.64 66.84 63.55 61.70 59.30 59.31 66.38 62.63 59.58 60.41 59.10 85.65 83.43 82.53 83.43 87.25 95.03 95.30 85.05 83.61 76.02 65.07 63.06 63.24 63.25 64.25 56.65 64.65 69.60 68.11 74.67 79.44 80.15 71.51 75.18 76.68 84.30 90.43 92.93 95.60 102.50 100.75 108.00 118.93 14.38 13.16 11.98 12.46 12.84 12.64 12.62 14.04 13.62 14.22 15.06 14.48 13.28 13.64 14.48 13.56 14.36 13.30 15.20 15.38 16.42 16.40 16.10 15.80 14.46 14.64 14.12 14.48 14.72 14.40 14.30 14.54 17.08 Dec-2014 Jan-2015 Feb-2015 Mar-2015 Apr-2015 May-2015 Jun-2015 Jul-2015 Aug-2015 Sep-2015 Oct-2015 Nov-2015 58.00 57.56 64.41 57.23 57.15 58.20 53.75 52.86 50.29 48.60 50.65 45.91 110.38 117.16 128.46 124.43 125.15 130.28 125.43 121.30 112.76 110.30 119.50 118.30 16.90 18.10 17.40 17.94 19.98 19.86 19.06 18.34 14.00 14.52 15.44 13.68 a. (5 marks) Design an Excel financial model that can help to evaluate this investment plan. Marks will be allocated for the presentation and clarity of your model (e.g., if there are clear headin appropriate use of colors, have some degree of flexibility, generate warning messages for wrong user inputs, etc.). The Excel financial model should enable you to consider the inv questions: b. (3 marks) For each stock, show the monthly stock returns. c. (3 marks) Based on the responses in part (b), calculate the average monthly stock returns and standard deviation for each stock. d. (2 marks) Calculate the correlation of monthly stock returns between each pair of stocks. e. (4 marks) Suppose that you invest 20% in Apple Inc., 50% in Rio Tinto Ltd and 30% in Cathay Pacific Airlines. Calculate the portfolio expected return, variance and standard deviation. f. (4 marks) How does the expected return and standard deviation change if you decide to invest 60% in Rio Tinto Ltd, 30% in Apple Inc. and 10% in Cathay Pacific Airlines? Explain your answ g. (5 marks) Find the weights of Apple Inc., Rio Tinto Ltd and Cathay Pacific Airlines that will provide a monthly return of 0.5% with the lowest level of risk. h. (5 marks) Plot a scatter diagram showing the portfolios from parts (e), (f) and (g), with the X-axis displaying standard deviation and the Y-axis displaying monthly returns. i. (4 marks) If the monthly risk-free rate is 0.1%, estimate the Sharpe ratio for the portfolios mentioned in parts (e), (f) and (g) and highlight the highest Sharpe ratio using conditional formattin g. (5 marks) Find the weights of Apple Inc., Rio Tinto Ltd and Cathay Pacific Airlines that will provide a monthly return of 0.5% with the lowest level of risk. h. (5 marks) Plot a scatter diagram showing the portfolios from parts (e), (f) and (g), with the X-axis displaying standard deviation and the Y-axis displaying monthly returns. i. (4 marks) If the monthly risk-free rate is 0.1%, estimate the Sharpe ratio for the portfolios mentioned in parts (e), (f) and (g) and highlight the highest Sharpe ratio using conditional formattin 015. Ignore dividends for this question. Students used the prices that ignored dividends from Yahoo Finance g., if there are clear headings, clear arrangement for input cells, ble you to consider the investment plan and answer the following standard deviation. rlines? Explain your answers. turns. using conditional formatting