You are an associate at Schoenberg Financial Advisory. You are considering the common stocks of General

Electric $($GE$),$ as well as the risk$-$free asset $($rf$)$ and the stock market index $($m$).$

You have the following information:

$$ The monthly returns of GE$,$ rf and m are given in the template file.

$$ You use the sample average for the expected return on the market portfolio and for the risk$-$free rate. To

calculate sample variance of the monthly returns, use Excel function VAR.S$().$To calculate sample standard

deviation of the monthly returns, use Excel function STDEV.S$().$

Assume that you can borrow and lend at the risk$-$free rate and the Capital Asset Pricing Model $($CAPM$)$ accurately

describes the expected returns on assets.

a$)(10$ points$)$ Use linear regression to estimate GE$$s beta in the sample. What is GE$$s beta? What is the

expected return $($in percentage points$)$ on GE$$s stock as implied by CAPM? Hint: the market risk premium

is the historical average of market excess return in the sample.

Currently you have a portfolio with $$200,000$ invested in GE$$s stock, $$100,000$ in the market portfolio m$,$ and

$$100,000$ in the riskless asset rf$.$

b$)(5$ points$)$ What is the beta of your current portfolio?

c$)(5$ points$)$ What is the standard deviation of your current portfolio$$s excess return $($in percentage points$)?$

d$)(5$ points$)$ Find an efficient portfolio $($one that has no diversifiable risk$)$ that has the same expected return

as your current portfolio, but the lowest standard deviation possible. What is the standard deviation of

this efficient portfolio$$s excess return $($in percentage points$)?$

e$)(5$ points$)$ True or false, and why: if the correlation of a portfolio's rate of return with the market

portfolio's rate of return is $1$ then that portfolio has a beta with the market of $1$