# PS6 - Problem Set 6 Ec 136 Fall 2009 This problem set is...

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Problem Set 6 Ec 136, Fall 2009 This problem set is due Thursday November 12, in class. Sorry, no late prob- lem sets are accepted! All students must submit problem sets individually. Please write your name, section time and GSI on the front page of your solution. 1. Mean-variance analysis with two risky assets The spreadsheet returns.xls contains annual return data for value and growth stocks. We are going to use Excel to explore the e¢ cient frontier of value and growth stocks using these data. Please turn in a printout of your two Excel graphs with your solution. a) Download returns.xls, and clear the contents of columns D - Z (you will only need the data contained in columns A, B and C). In columns D and E, compute the annual net simple return of value and growth stocks in natural units (e.g., in D3, put =B3/100). Also compute the average annual return, variance and standard deviation for both value and growth, using the average and var functions in Excel (e.g., =var(D3:D84)). These are our estimates of the expected return, variance and standard deviation. 1 b) Calculate the covariance of value stocks with growth stocks using the covar function. If value had a high return in a year, what would you expect happened to growth? What

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PS6 - Problem Set 6 Ec 136 Fall 2009 This problem set is...

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