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use the table belowyou can find the excel table on link https://1drv.ms/x/s!AptOH4G_7w3shQSCf5StHS0xub2y?e=9ZH1Os In it you will find the time series of monthly returns for Microsoft
use the table belowyou can find the excel table on link https://1drv.ms/x/s!AptOH4G_7w3shQSCf5StHS0xub2y?e=9ZH1Os
In it you will find the time series of monthly returns for Microsoft (MSFT) and General Motors (GM). Answer the following questions based on the data in the spreadsheet.
- Compute and report the mean returns, variances, and standard deviations for the two stocks. In addition, compute the covariance and the correlation between the two stock returns. Report all numbers as annualized. Hint: annualized variance is equal to 12 monthly variance.
- Plot the mean-standard deviation graph for a portfolio constructed from investments in MSFT and GM. Hint: first compute the portfolio returns and standard deviation for portfolios with w% in MSFT and (1 w)% in GM; then plot the portfolio returns on the y-axis and portfolio standard deviation on the x-axis.
- Compute the expected return, standard deviation, and weights in the minimum variance portfolio. Please show the formula for the portfolio weights.
- Compute the expected return, standard deviation, and weights in the tangent portfolio if the risk-free rate is 2%. Also, compute the Sharpe Ratio for the tangent portfolio.
- Suppose you require that your portfolio yield an expected return of 25%, and that it be efficient on the best feasible CML (tangent line). What is the standard deviation of your portfolio? What is the portion invested in the risk-free asset and in each of the two stocks?
- If you were to use only the 2 stocks (no risk-free asset) and still require an expected return of 25%, what must be the investment proportions of your portfolio?
- Suppose that you cannot borrow at the risk-free rate. You wish to construct a portfolio with an expected return of 50%. What are the portfolio weights and the resulting standard deviation? What reduction in standard deviation could you attain if you were allowed to borrow at the risk-free rate?
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