Please show all steps you take to get your answers.

1. The table below presents the returns on stocks ABC and XYZ for a five-year period.

a. Calculate the average return and standard deviation of stock ABC and XYZ. Also, calculate the correlation between the two stocks. What does the correlation tell you about the return movements of the two stocks?

b. Calculate the weight of each stock in the minimum variance portfolio, assuming the expected return equals to average return for each stock.

c. Suppose the risk-free rate is 5%. Also assume the expected return equals to average return for each stock. Calculate the weights for the two stocks in the optimal risky portfolio; AND the return and risk (standard deviation) of the portfolio.

Year 1 2 3 4 5 ABC 0.07 0.44 -0.02 0.26 0.23 XYZ 0.13 0.12 -0.17 -0.32 -0.22 Year 1 2 3 4 5 ABC 0.07 0.44 -0.02 0.26 0.23 XYZ 0.13 0.12 -0.17 -0.32 -0.22