Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Macy's, Microsoft, Amazon, Facebook, and Apple are all 5 companies have been publicly traded with daily price data available in Yahoo Finance. Create a portfolio

Macy's, Microsoft, Amazon, Facebook, and Apple are all 5 companies have been publicly traded with daily price data available in Yahoo Finance. Create a portfolio that invests 24% of $1 million in company A, 22% in company B, 20% in company C, 18% in company D, and 16% in company E.

What is the return standard deviations for each of the 5 stocks and for the portfolio during the last calendar year (2018)? Please use daily returns, and make sure to show your work. Please keep in mind that the standard deviation you will get using daily data is the daily standard deviation. In finance, the practice is to annualize the standard deviation by multiplying the daily standard deviation by sqrt(252) - there are approximately 252 trading days in a year. This is especially important if you want to be able to compute the Sharpe ratio correctly. The numerator in the Sharpe ratio is the ***annual*** excess return. Therefore, the denominator, which is the standard deviation, should also be annualized.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investments

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

10th edition

77861671, 978-0077861674

More Books

Students also viewed these Finance questions