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1 - Copy (2) - COMM 324 INVESTMENTS AND PORTFOLIO...

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COMM 324 INVESTMENTS AND PORTFOLIO MANAGEMENT ASSIGNMENT 2 Due: October 18 1. (Spreadsheet question) The monthly return data are given in the spreadsheet that are available on the course website. a. Calculate their variance-covariance matrix b. Plot the mean-variance frontier by using solver from Excel c. If the month return of T-bill is 0.1%, what is the reward-to-variability ratio of the optimal portfolio? d. If your degree of risk-aversion is A=2, what is the optimal proportions you invest in each stocks? 2. In 1998 the rate of return on short term government securities (perceived to be risk-free) was about 4.5%. Suppose the expected rate of return required by the market for a portfolio with a beta of 1 is 11%. According to the CAPM: a. What is the expected rate of return on the market portfolio? b. What would be the expected rate of return on a stock with beta = 0? c. Suppose you consider buying a share of a stock at $40. The stock is expected to pay a $3 dividend next year and you expected to sell the stock at $41. The stock’s beta has been estimated at beta=-0.5. Is the stock over valued or under valued?
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This note was uploaded on 10/17/2010 for the course SOCY 145 taught by Professor Darwinlohouse during the Spring '10 term at Grace NE.

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1 - Copy (2) - COMM 324 INVESTMENTS AND PORTFOLIO...

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