You are presented with the monthly stock prices of five (5) listed companies labeled Stock Prices. You are also presented with the market capitalization figures of these companies labelled MV. Note that columns for stock prices correspond with columns for capitalization. Data are for the period October 31, 1995 to October 31, 2005. In the following exercises, use the five (5) companies with complete data over the ten-year period. You will use excel throughout in these exercises. Allotted marks are indicated. 1. Compute the holding period returns from the prices of the five stocks that you have selected and obtain the expected return and the risk of each stock. Plot a graph with the expected return on the vertical axis and risk on the horizontal axis. Assess if there is a risk return relationship in the five stocks selected. (6 marks) 2. (i) Using the market capitalization figures, generate an index based on the five stocks. Set the base of index to be equal to 100 by selecting any of the dates of choice using the market capitalization of that date as your base capitalization. Kindly indicate clearly what this date is as well as the capitalization of that date. Generate the index as well as the returns of the index. Plot the time series of both the index and the returns. (6 marks) (ii) Run a regression of the returns of each of the five stocks against the returns of the market index and measure the five slopes. What is the importance of the measurement of these slopes as far as investment is concerned? What is the significance of the are the slopes measuring? 3. In this exercise, select any two (A and B) of the five companies to form a two- asset portfolio. Combine the companies so that A hasthe following percentage weights, 100, 90, 80, 70, 60, 50, 40, 30, 20, 10, and 0. a. Compute the risk and the expected return of each portfolio. (7 marks) b. Plot a graph of expected return of the portfolio on the vertical axis and the risk on the horizontal axis. (7 marks) c. On your graph identify (i) the mean-variance frontier, (ii) the efficient frontier (iii) the inefficient frontier (iv) the minimum variance point. Explain the significance of these frontiers or points in investment.

1 2 3 4 5 10/31/1995 4681.3 675 142.4 #NA 1205 11/30/1995 4754.9 625.1 155.6 91.9 1177.7 12/29/1995 5154.1 683.9 165.3 96.9 834.6 1/31/1996 5395.9 730.7 164.9 106 853.7 2/29/1996 5129.4 754.7 166.6 107.1 740.8 3/29/1996 5267.3 792.1 161.6 102.8 748.4 4/30/1996 5425.5 901.2 163.6 125.5 808.9 5/31/1996 5762.3 856.9 159.9 137.3 982.6 6/28/1996 6087.1 851.7 162.9 147.9 828 7/31/1996 5745.9 861 165.3 130 771.4 8/30/1996 5903.4 878.2 176.6 126.6 933.8 9/30/1996 6462 931.6 183.2 151.6 1003.8 10/31/1996 6373.7 1022 181 140.9 1031.1 11/29/1996 6598.7 1023.8 193.5 157 1258.3 12/31/1996 6705.5 1135.3 228.4 152.8 1310.6 1/31/1997 7555 1219.8 248 177 1595.7 2/28/1997 7243 1244.6 267.4 162 1500 3/31/1997 7760.6 1213.9 268.5 164.7 1499.3 4/30/1997 7700.7 1200.7 306.4 170.3 1605.2 5/30/1997 8396.6 1103.2 343.1 165.3 1661.9 6/30/1997 9705.4 1289.3 378.1 195.3 1929.6 7/31/1997 10154.9 1456 363 212.9 2359.9 8/29/1997 9301.8 1305.7 354.8 199.7 2069.8 9/30/1997 11129.8 1237.3 409 220.5 2492.2 10/31/1997 10537.4 1236.1 342.7 192.1 2233 11/28/1997 10198.3 1331.8 378.8 204 2104.8 12/31/1997 10790.2 1512.1 426.9 202.4 1897.1 1/30/1998 10512.3 1523.7 461.1 211.8 2130.4 2/27/1998 10993.4 1555.6 600.1 210.6 2701.6 3/31/1998 12255.5 1604.5 658.4 250.3 2987.8 4/30/1998 11772.9 1644.4 680.1 239.4 3630.6 5/29/1998 12541.1 1579.6 644.9 250.6 3536.6 6/30/1998 13284.1 1626.6 663.5 240.8 3994.3 7/31/1998 11511.7 1640.6 723.6 235.8 4704.3 8/31/1998 9707.2 1520 484.2 189.7 3791.1 9/30/1998 11936.2 1885.8 379.4 208.7 3998.6 10/30/1998 10835.9 1990.8 445 201 4543.5 11/30/1998 11922.1 2323.5 509.5 214.5 5006.4 12/31/1998 9571.2 2105.9 487.2 222.5 6147.8 1/29/1999 9927.7 2597.6 488.6 208.2 7575.9 2/26/1999 10537.8 2406.9 520.2 209.4 7346 3/31/1999 12656.4 2342.4 546.1 235.3 8855.5 4/30/1999 14375.7 2226.7 592.5 248.5 8665.4 5/31/1999 13122.3 2406.6 576.1 242.1 8196.2 6/30/1999 13876.6 2577 582.2 236.8 10096.8 7/30/1999 13500.4 2433 536.7 232.7 9621.7 8/31/1999 13840.7 2467.4 550.6 232.7 9384.1 9/30/1999 13386.9 2505 562.2 240.9 9989.9 10/29/1999 14578.1 2627.1 573.8 227.4 12925.1 11/30/1999 14986.6 2561.4 634.3 222.5 16701.3 12/31/1999 15031.9 2588.9 653.5 223.3 21381.5 1/31/2000 14430.7 2411.1 588.1 197.9 22022.9 2/29/2000 15599.2 2504.4 636.6 197.5 24588.7 3/31/2000 17754.7 2495.6 655.8 213.9 26345.6 4/28/2000 18934.6 2570.8 672.8 223.7 30065 5/31/2000 19161.5 2927.7 616.5 236.4 26607.9 6/30/2000 18614.4 3158.7 648.2 255.2 25487.3 7/31/2000 18533.2 3643 656.7 254.8 22797.9 8/31/2000 19367.7 3475.2 713.2 277.2 23541.8 9/29/2000 19217.1 3855 733.3 253.1 21896.6 10/31/2000 19541.6 3924.7 676.4 269.2 23122.1 11/30/2000 19043.2 4431.1 603.5 292 22960 12/29/2000 18359.4 4494.4 675.2 286.9 22650.1 1/31/2001 18371 3918.3 702.1 294.9 18024.7 2/28/2001 17791.4 3734.8 661 297.9 11730.3 3/30/2001 17791.4 4000.6 615.8 312.2 13109.5 4/30/2001 19472.1 4279.2 670 325.7 17970.7 5/31/2001 20482.9 4589.3 673 320.6 16467.5 6/29/2001 19708.4 4950.9 640.1 312.6 12897.5 7/31/2001 19374.7 4586.8 604.9 301.5 12117 8/31/2001 19386.6 4602.8 603.7 316.9 8301.2 9/28/2001 17575.5 4567.6 506.8 295.9 8648.1 10/31/2001 18588.3 4679.4 518.3 302.2 11191.9 11/30/2001 16979.7 4944.5 577.2 285 12574.7 12/31/2001 19112.6 5353.4 570.5 305.6 13952.6 1/31/2002 19410.5 4970.1 550.6 328 12878.2 2/28/2002 20244.5 4848.7 562.8 343.8 11837.5 3/29/2002 21090.6 4701.8 586 364.7 11804.1 4/30/2002 20042 4538.9 630.6 370.1 8749.6 5/31/2002 20558.2 4149.2 606.7 353.8 7453.7 6/28/2002 20250.3 3997 493.2 366.5 7219.9 7/31/2002 18168.6 3906.2 385.3 350.8 6187.1 8/30/2002 17909.9 3967.8 422.2 351.4 6635.3 9/30/2002 16407.2 3701.8 320.5 315.9 6552.4 10/31/2002 17133.9 4006.8 383.8 319.1 8355 11/29/2002 16641.2 3854.3 450.8 332.8 9451.1 12/31/2002 16764.4 3779.7 409.5 344.8 7380.6 1/31/2003 15471 3156.7 364 320.7 6372.2 2/28/2003 15101.5 3219.7 376.7 313.4 6040.9 3/31/2003 14288.5 2991.9 370.4 278.6 6294.4 4/30/2003 14473.3 3468.2 445.7 290.7 7537.3 5/30/2003 16096.1 3526.6 438.8 312.3 7606.9 6/30/2003 17014 3385 486.6 316.7 7129.6 7/31/2003 17039.9 3325.2 510.2 315.2 6771.7 8/29/2003 18061.3 3398.2 499.7 330.8 7418 9/30/2003 16755.5 3464.6 468.2 315.5 6572.8 10/31/2003 17285.6 3534.3 534.8 328.4 7263.9 11/28/2003 17427.8 3750 562 341.9 7472.7 12/31/2003 19056.8 3962.4 608.7 359.7 6816.4 1/30/2004 18294 3796.5 603.2 359.5 8258.2 2/27/2004 19005.1 3650.5 608.4 379.2 8765.4 3/31/2004 19315.3 3527.7 577.8 393.4 8446.4 4/30/2004 19948.8 3517.7 584.9 407.8 5944.9 5/31/2004 20968.5 3694.2 570.4 403.7 5787.9 6/30/2004 21184.8 3554.4 560.6 409.5 6005.7 7/30/2004 21806.7 3759 519.2 429.1 4825.8 8/31/2004 21644.4 3984.2 533.1 421.8 4871.4 9/30/2004 22171.7 3989.3 521.2 452.6 5610.7 10/29/2004 22036.5 3914.1 580.2 446.6 6122.1 11/30/2004 22754.2 3869.7 604.3 463.4 6198.1 12/31/2004 22201.6 4016.6 610.3 462.2 5884.1 1/31/2005 22726.6 3910.7 608.9 467.7 5950 2/28/2005 24771.3 4125.9 630.5 494.3 6218.4 3/31/2005 24937.1 4443.5 632.5 502.6 6056.3 4/29/2005 23831.8 4672.4 607.6 489.5 6410.8 5/31/2005 25220.4 5007.1 629.4 520.9 7097.6 6/30/2005 27299.9 4714.7 651.1 557.3 7206.9 7/29/2005 29084.3 4954.2 693.9 612.7 6853.1 8/31/2005 29941.3 4804.9 677.4 627.6 6598.1 9/30/2005 31908.4 4773.7 747.9 646.2 7253.7 10/31/2005 29421.5 4638.3 728 597.2 7222.5