Part 1 Portfolio Return and Risk Instruction: You are a portfolio investment analyst at Goldman Sachs. Your investment unit manages two equity portfolios - one portfolio, named P1, consists of two stock assets (Bank of America (BAC) and McDonald(Ticker: MCD)) and the other portfolio, named P2, consists of five stocks (Aetna(Ticker:AET), Boeing(Ticker:BA), Amazon(Ticker:AMZN), Tesla(Ticker:TSLA), Discover (Ticker:DFS)). Now you are asked to compute two portfolio returns and risk measures. To do this, first download monthly stock prices from Jan.2010 to Dec.2017 from Bloomberg and compute monthly stock returns from Feb.2010 to Dec.2017.1

Problem 1. Compute the respective average, standard deviation, and covariance of monthly stock returns.

Problem 2. Make two covariance matrices using two portfolio components. Note that you have to make a completed form of a matrix as below.

P 1 = 2 BAC = BAC,BAC BAC,MCD = MCD,BAC MCD,BAC = BAC,MCD 2 MCD = MCD,MCD

P 2 = 2 AET AET ,BA AET ,AMZN AET ,T LSA AET ,DF S BA,AET 2 BA BA,AMZN BA,T LSA BA,DF S AMZN,AET AMZN,BA 2 AMZN AMZN,T LSA AMZN,DF S 2 T LSA,AET T LSA,BA T LSA,AMZN 2 T LSA T LSA,,DF S 2 DF S,AET DF S,BA DF S,AMZN DF S,T LSA 2 DF S

Problem 3. Using the obtained statistics from problem 1, calculate an equal weighted portfolio return and portfolio variance for the first portfolio using the below equations.

E(RP1 ) = wBAC rBAC + wMCDrMCD

2 P1 = w 2 BAC 2 BAC + w 2 MCD 2 MCD + 2wBAC wMCDBAC,MCD

Problem 4. Using the obtained statistics from problem 1, calculate an equal weighted portfolio return and portfolio variance for the second portfolio using the below equations.

E(RP2 ) = wAET rAET + wBArBA + wBAC rBAC + wAMZN rAMZN (5) + wT LSArT LSA + wDF SrDF S