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Part One: Portfolio Management

1. Go to http://finance.yahoo.com, download monthly Adj. close prices (adjusted for dividend and stock split) from 01/01/2012 through 12/31/2017 for the following three companies. The monthly risk free rate during this period is 0.02%.

Compan Ticker

APPL AAPL

WALMART WMT

GOLDMAN SACH GS

1. Compute monthly holding period return using Adj. close prices for each stock.
2. Use the EXCEL statistical functions to compute mean (AVERAGE) and standard deviation (STDEV) of the monthly return for each stock.

Assume that historical mean returns are good estimates of expected returns.

1. To achieve diversification, John invests in APPLE and WALMART. What are the weights on the two stocks to achieve the optimal risky portfolio? What are the mean and standard deviation of returns on his optimal risky portfolio? Must show your calculation by including the formulas you used.
2. Mary instead invests in APPLE and GOLDMAN SACHS. What are the weights on the two stocks to achieve the optimal risky portfolio? What are the mean and standard deviation of returns on her optimal risky portfolio? Must show your calculation by including the formulas you used.
3. Discuss whose optimal portfolio performs better (John or Mary), and explain why.

Part Two: Estimation of Beta

Please complete the following requirements for two stocks, Dynex Capital Inc. (ticker DX); International Paper Company (ticker IP). The risk free rate is provided in a separate EXCEL file.

2. Compute monthly holding period return using Adj. close prices for each stock.
3. Suppose we consider the USA S&P 500 index (ticker: ^GSPC)as the market portfolio. Estimate betas of DX and IP based on the index model regressions, and show your regression output.
4. Calculate mean return, STD, and beta of the two portfolios: Portfolio A (90% in ^GSPCand 10% in DX), Portfolio B (90% in ^GSPCand 10% in IP). Must show your calculation by including the formulas you used.

Detailed Explanation and Presentation Requirement

* You can do much of the research over the internet (e.g., http://finance.yahoo.com), and calculation must be done in EXCEL.

* The assignment must be typewritten and submitted in hard copy by 04/24/2018 (in class). Meanwhile, ONE electronic copy of the project (including excel sheets and WORD file) must be submitted on Canvas under the "Project" by 9:00pm on 04/24/2018. PLEASE DO NOT EMAIL ME THE PROJECT. NO LATE ASSIGNMENT IS ACCEPTED.

*The project can be completed by a group of five (or fewer)students. It is your responsibility to make sure the accuracy of the work done by your colleagues. ALL MEMBERS OF YOUR GROUP WILL RECEIVE THE SAME GRADE ON THE PROJECT.Please submit ONE copy for each group with ALLgroup members' names listed.

No credit will be given to a student unless both his/her first and last names are included in the project.

* The hard copy and e-copy must include the following information:

1. Lists of dates, Adj. close prices, and monthly holding period returns of all the index and securities in Part One and Part Two.
2. Mean and standard deviation of all the index and securities returns.
3. Beta of DX and IP, and show your regression output.
4. Mean return, STD, and beta of the two portfolios: Portfolio A (90% in ^GSPCand 10% in AAPL), Portfolio B (90% in ^GSPCand 10% in WMT). Must show your calculation by including the formulas you used.
5. Written discussions addressing the questions that are raised above in both parts. Any data, analysis, and evidence you used to support your argument must be presented in the hard copy.

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