Select 2 companies you would like to evaluate on https://finance.yahoo.com/

Download the monthly prices for both companies over the last two-year period

Type the company name in the search box

Click the `Historical Data tab

Select a 2-year time period and `Monthly frequency

Click `Apply then `Download Data

Download the monthly prices for the S&P 500 index, or any other index you think represents the market, over the same two-year period as above

Use EXCEL to calculate the following for each stock you selected in addition to the S&P500. Use `Close prices for these calculations.

Monthly returns

Average monthly return. EXCEL function: =AVERAGE()

Standard deviation of monthly returns. EXCEL function: =STDEV.S()

Correlation of the two stocks with each other. EXCEL function: = CORREL()

You have $10,000 to invest in the stocks you have selected. Allocate how much youd like to invest in each stock (i.e. the portfolio weights for each stock) and calculate the number of shares you need to buy for each stock. Use the prices of the last month for each stock.

For your portfolio, calculate:

Expected monthly return

Standard deviation of monthly returns

Does your portfolio perform better or worse than the S&P 500 index, based on your calculations

in #4 and #6? Compare average returns and standard deviations.

Would you prefer to invest your savings in your portfolio or the S&P500, if you were going to

hold the shares for 10 years? Why?

You are told that the market risk premium is equal to 6% per month and the risk free rate is 2%.

Go back to Yahoo! Finance and find the betas for your two stocks

Using the betas, calculate the expected return for each stock based on the CAPM

How does this return compare to the historical averages you found in #4? Hint: how

many standard deviations is the monthly return from the expected return?

Your friend tells you that she wants to start saving for retirement by investing in the stock market. Given that you have taken a finance class, she asks you for advice about what stocks she should buy. What would you tell her?