need help with 5-9. using Apple and Google as my two stocks. monthly returns from jan 21 back 8 years.
you observe? over time represent the stock's full return. Compute a third series of returns to an equal-weighted portfolio of the two stocks by averaging the returns each month. 1. Construct a histogram of frequencies for each of the three series of returns (your two stocks individually and the equal weighted portfolio). (Note: To calculate a histogram in Excel, install the Analysis ToolPak add-in and use the Data->Data Analysis option.) What do Are there any differences between the three graphs? 2. Compute the average monthly return and the standard deviation for each series of returns. 3. Calculate and report the correlation between the two stock return series. Use formulas from the "Introduction to Portfolio Theory" note to calculate average monthly returns and standard deviations for 30/70,50/50, and 70/30 portfolios of the two stocks. For clarification, a 30/70 portfolio assigns 30% weight to the first stock and 70% to the second 4. For each return series and portfolio (two stocks individually, three potential portfolios), graph the monthly average return on the y-axis and its standard deviation on the x-axis. (Note: Use Insett->Chart->Scatterplot.) Which of the two stocks scems better in terms of the risk-return trade of How do the stocks compare to the 30/70, 50/50, and 70/30 portfolios? Now consider the policy portfolio problem facing the Harvard Management Company. Use their assumptions about real returns, risk, and correlations. Further, assume the real tisk-free rate is 0.5%, and that the cash' asset class listed in the case is not the true risk-free asset. 5. Graph the set of expected annual real returns (y-axis) and standard deviations (x-axis) that are obtainable by combining domestic equity with the risk-free asset. 6. Graph the set of expected annual real returns (y-axis) and standard deviations (x-axis) that are obtainable by combining domestic bonds with the risk-free asset. 7. Graph the set of expected annual real returns (y-axis) and standard deviations (x-axis) that are obtainable by combining domestic equity and domestic bonds. You can do this by varying the weights in domestic equity and domestic bonds. 2. What portfolio of domestic equity and domestic bonds minimizes risk (portfolio standard deviation)? Find a precise answer with weights to the nearest tenth of a percent (e-g. 32.1%) using calculus. b. An investment's Sharpe Ratio is its expected return in excess of the risk-free rate divided by its standard deviation (Average Return - 0.5%) / Standard Deviation in this case]. What portfolio of domestic equity and domestic bonds has the highest Sharpe Ratio? Find a precise answer with weights to the nearest tenth of a percent (c.g 32.1%) using Excel's Solver, 8. Please answer in no more than 5 sentences Why might an investor prefer the portfolio with the highest Sharpe Ratio? Should I expect to earn this Sharpe Ratio next year? 9. Please answer in no more than 5 sentences: Are their limitations to using return vacance to measure portfolio risk? What other tisks may be relevant based on the Harvard Management Company case? you observe? over time represent the stock's full return. Compute a third series of returns to an equal-weighted portfolio of the two stocks by averaging the returns each month. 1. Construct a histogram of frequencies for each of the three series of returns (your two stocks individually and the equal weighted portfolio). (Note: To calculate a histogram in Excel, install the Analysis ToolPak add-in and use the Data->Data Analysis option.) What do Are there any differences between the three graphs? 2. Compute the average monthly return and the standard deviation for each series of returns. 3. Calculate and report the correlation between the two stock return series. Use formulas from the "Introduction to Portfolio Theory" note to calculate average monthly returns and standard deviations for 30/70,50/50, and 70/30 portfolios of the two stocks. For clarification, a 30/70 portfolio assigns 30% weight to the first stock and 70% to the second 4. For each return series and portfolio (two stocks individually, three potential portfolios), graph the monthly average return on the y-axis and its standard deviation on the x-axis. (Note: Use Insett->Chart->Scatterplot.) Which of the two stocks scems better in terms of the risk-return trade of How do the stocks compare to the 30/70, 50/50, and 70/30 portfolios? Now consider the policy portfolio problem facing the Harvard Management Company. Use their assumptions about real returns, risk, and correlations. Further, assume the real tisk-free rate is 0.5%, and that the cash' asset class listed in the case is not the true risk-free asset. 5. Graph the set of expected annual real returns (y-axis) and standard deviations (x-axis) that are obtainable by combining domestic equity with the risk-free asset. 6. Graph the set of expected annual real returns (y-axis) and standard deviations (x-axis) that are obtainable by combining domestic bonds with the risk-free asset. 7. Graph the set of expected annual real returns (y-axis) and standard deviations (x-axis) that are obtainable by combining domestic equity and domestic bonds. You can do this by varying the weights in domestic equity and domestic bonds. 2. What portfolio of domestic equity and domestic bonds minimizes risk (portfolio standard deviation)? Find a precise answer with weights to the nearest tenth of a percent (e-g. 32.1%) using calculus. b. An investment's Sharpe Ratio is its expected return in excess of the risk-free rate divided by its standard deviation (Average Return - 0.5%) / Standard Deviation in this case]. What portfolio of domestic equity and domestic bonds has the highest Sharpe Ratio? Find a precise answer with weights to the nearest tenth of a percent (c.g 32.1%) using Excel's Solver, 8. Please answer in no more than 5 sentences Why might an investor prefer the portfolio with the highest Sharpe Ratio? Should I expect to earn this Sharpe Ratio next year? 9. Please answer in no more than 5 sentences: Are their limitations to using return vacance to measure portfolio risk? What other tisks may be relevant based on the Harvard Management Company case
