In the New York Stock Exchange (NYSE), the common stocks of General Motors (GM) and

Ford (F) are recorded historically below.

Year GM Common

Stock Return

Ford Common

Stock Return

2003 -10.00% -3.00%

2004 +18.50% +21.29%

2005 +36.87% +44.25%

2006 +14.33% +3.67%

2007 +33.00% +28.30%

Required tasks:

As a capital-budgeting manager at NYSE, it is required to calculate the following task for

advising client:

1) Estimate the average rate of return of each stock individually. (10%)

2) If the client invested in a stock portfolio comprising 50% of GM common stocks and

50% of Ford common stocks, what would have been the rate of return on the asset

portfolio each year? (10%)

3) What would have been the average return on the portfolio during the period from 2003

to 2007. (10%)

4) Estimate the (individual) risk of each stock. (10%)

5) Calculate the risk for the asset portfolio (both common stocks taken together). (10%)

6) What is the coefficient correlation between the returns of the two common stocks?

(10%)

7) Critically discuss the modern portfolio theory, which was pioneered by Harry Markowitz,

in relation to your findings and advise your client accordingly in layman's terms on the profitability of your client's asset portfolio. (40%

Assignment link is below attached. Please focus of question 7 as it is worth 40%.