Problem #1

Using the efficient portfolio instead of the SP500:

a. Compute the monthly returns on the efficient portfolio. b. Regress the average monthly returns of the stocks on their betas with respect to the efficient portfolio. c. Explain your results considering Propositions 3 and 4 from Chapter 1

Problem #2

Perform the second-pass regression: Regress the monthly average returns on the betas of the assets. Does this confirm that the SP500 is efficient?

Problem #3

Compute the variance-covariance matrix for the 10 stocks. Using the monthly average returns and a monthly risk-free interest rate of 0.20%, compute an efficient portfolio. Here is the template: