Suppose you have $150,000 to invest in a two-stock portfolio. Complete the following eight steps to gather information about your portfolio:

• Pick two publicly traded companies listed on a U.S. stock exchange (excluding Tesla and Proctor & Gamble).
  • View a list of the companies that trade on the NYSE.
  • View a list of the companies that trade on the NASDAQ.
  • View a list of the companies that trade on the AMEX.
• Download the Monthly historical price data from September 2018 - September 2023 for each company
• Calculate the monthly returns for each company over the time period using the adjusted close (Adj Close) price
• Use the average() function in excel to find the average monthly return for each company over the time horizon. This will reflect the expected return for each stock.
• Use the stdev.s() function in excel to find the standard deviation of the monthly returns for each company.
• Use the correl() function in excel to find the correlation coefficient between the returns of each stock
• Find the Beta from the summary information page on Yahoo!Finance(Links to an external site.)
• A table that contains the average return, standard deviation, correlation, and beta information for the two stocks.

Use the information above to answer the following questions:

1. You can split your $150,000 anyway you want into your two-stock portfolio (i.e., except 100% in one-stock or 50%/50% split between the two). Decide how much of the $150,000 you want to invest in Stock 1 and put the remainder of the $150,000 in Stock 2. Calculate the weights for each stock in your portfolio
2. What is the expected return of your portfolio?
3. What is the standard deviation of your portfolio?
4. What is the beta of your portfolio?
5. Forget that you have calculated the expected return above. Assume all you know is each company's beta, and that the market risk premium is 5.50% and the risk-free rate is 4.89% (using the 3-month T-bill yield as the risk-free proxy). Using the Capital Asset Pricing Model (CAPM), what is the expected return for each company?
6. How does the correlation coefficient of the two stocks impact the standard deviation of your portfolio? Would a positive or negative correlation drive the risk of your portfolio up, and why?