Please carefully write up your answers to the following questions and hand in a hard copy.

Also send me your Excel sheet that shows your computations.

Suppose there are only two stocks and a T-bill money market fund that yields a sure rate of 5%. The characteristics of the two stocks are:

Stock	Expected Return	Standard Deviation
A	12%	40%
B	8%	20%

Consider five possible values for the correlation between the two stocks:

? ?{?0.8,?0.4,0,0.4,0.8}

1. For each of the five possible values for the correlation ?, use Excel to tabulate and draw the investment opportunity set of the two stocks. Use investment proportions for Stock A of ?100% to 200% in increments of 1%. [You will have five graphs, one for each ?]

2.For each of your five opportunity sets, compute the minimum variance portfolio (MVP) (find the expected return, standard deviation, and the weights on the two stocks that comprise each MVP).

3.What is the slope of the best feasible CAL for each ??

4.On each graph, draw a tangent from the risk-free rate to the investment opportunityset. What expected return and standard deviation does each of your graphs show for the optimal risky portfolio? What are the weights on the two stocks that comprise this portfolio?

5.Suppose your portfolio must provide an expected return of 8%. For each ?, answer the following.

(a)If you use only the two stocks to form your portfolio, what is the lowest standarddeviation you can achieve?

(b) If you use the two stocks and the T-bill fund, what is the lowest standard deviationyou can achieve? Compare with your answer to part (a). What do you conclude?

(c)If you have $10,000 to invest, how much money do you invest in Stock A, StockB, and the T-bill fund to form the portfolio in part (b)?

6.Now suppose the two stocks are perfectly negatively correlated (? = ?1). Construct a portfolio with zero variance, and show that the risk-free rate must be greater than 5%.

please send the excel and word file to my email. thank you

Please carefully write up your answers to the following questions and hand in a hard copy. Also send me your Excel sheet that shows your computations. Suppose there are only two stocks and a T-bill money market fund that yields a sure rate of 5%. The characteristics of the two stocks are: Stock Expected Return Standard Deviation A 12% 40% B 8% 20% Consider five possible values for the correlation between the two stocks: {0.8,0.4,0,0.4,0.8} . 1. For each of the five possible values for the correlation , use Excel to tabulate and draw the investment opportunity set of the two stocks. Use investment proportions for Stock A of 100% to 200% in increments of 1%. [You will have five graphs, one for each ] 2. For each of your five opportunity sets, compute the minimum variance portfolio (MVP) (find the expected return, standard deviation, and the weights on the two stocks that comprise each MVP). 3. What is the slope of the best feasible CAL for each ? 4. On each graph, draw a tangent from the risk-free rate to the investment opportunityset. What expected return and standard deviation does each of your graphs show for the optimal risky portfolio? What are the weights on the two stocks that comprise this portfolio? 5. Suppose your portfolio must provide an expected return of 8%. For each , answer the following. (a) If you use only the two stocks to form your portfolio, what is the lowest standarddeviation you can achieve? 1 (b) If you use the two stocks and the T-bill fund, what is the lowest standard deviationyou can achieve? Compare with your answer to part (a). What do you conclude? (c) If you have $10,000 to invest, how much money do you invest in Stock A, StockB, and the Tbill fund to form the portfolio in part (b)? 6. Now suppose the two stocks are perfectly negatively correlated ( = 1). Construct a portfolio with zero variance, and show that the risk-free rate must be greater than 5%. 2