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Problem Six ( 1 5 marks ) You work for a small investment management firm. You have been provided with the following historical information for

Problem Six (15 marks)
You work for a small investment management firm. You have been provided with the following
historical information for three stocks and the market index. The information is shown in the table
below. The amounts are in dollars ($).
Using the data provided, calculate the following for each of the stocks and the market index:
a) What is the average annual return for the past thirteen years?
b) What is the geometric average annual return for the past thirteen years?
c) What is the population standard deviation and the sample standard deviation?
d) What is the correlation coefficient between Stocks AAA and BBB? Between Stocks AAA and
CCC? Between Stocks BBB and CCC?
e) What is the sample covariance between Stocks AAA and BBB, between Stocks AAA and
CCC and between stocks BBB and CCC?
f) What is the coefficient of variation for each of the stocks and the market index? You should
use the sample standard deviation.
g) What is the beta of each of the stocks? You can use Excel's "slope" function to estimate this.
h) Assume that the beta of stock AAA is 0.60, the beta of stock BBB is 0.80 and the beta of stock
CCC is 1.70. What is the beta of a portfolio where the weight in stock AAA is 15% the weight
in stock BBB is 35% and the weight in stock CCC is 50%?
i) Assuming the risk-free rate is 2.25% and the expected return on the market is 6.50% what is
the expected return on the portfolio in part (h) above?
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