Question 1:

Answer all section of question 1&2 using the attached excel spreadsheet. Show all answers on this sheet and your work on paper or on excel file uploaded to Canvas. Calculate the following (600 pts):

Beta Expected Return = R

QQQ 1.08 ??

SPY 1.01 ??

HYG 0.34 ??

XBT 0.0 ??

US-Treasury 0.0 0.8%

Equity Risk Premium 1.0 5.2%

Expected Market Return 1.0 6.0%

a) Based on two years of historic data provided by Bloomberg, calculate expected annual return, annual standard deviation and Sharpe ratio for each of the four exchange-traded funds (ETFs) portfolios (QQQ Nasdaq 100, SPY S&P 500, HYG iBoxx High Yield Bond, XBT -- Bitcoin). Hint: build up from monthly returns to annual.

b) Calculate the beta, expected annual return, annual standard deviation and Sharpe ratio for an equally weighted portfolio ( QQQ, SPY, HYG, XBT).

c) Do any of the portfolios lie on the security market line? If not are they above or below the line? Correctly draw SML with ETFs for extra points.

d) Construct a portfolio with an expected return consistent with the equity market using iBoxx High Yield ETF (HYG) and US Treasury 10-year bond. Assume you can invest and borrow at the risk-free rate.

e) Explain the difference between the Beta and standard deviation on the equally weighted portfolio.

f) How would you calculate unsystemic risk given the information above?