Assignment - Portfolio Theory and Asset Pricing Models

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Reference no: EM132401780

Assignment - Portfolio Theory and Asset Pricing Models

1. Capital Market Line

Download the most recent 10 years of monthly price data for SPY and VBMFX using yahoo finance. You can download the data using "Bulk Stock Quote Downloader" file. SPY is an ETF that tracks the S&P500 index. VBMFX is a bond index fund that tracks the bond market.

a. Compute returns using Adjusted Close Prices. As always create a table of summary statistics and compute the correlation and covariance matrices.

b. Plot the efficient frontier. Derive the optimal risky portfolio and draw the Capital Market Line (the tangent line that connect the risk-free asset to the optimal risky portfolio.) assuming the risk-free rate is 2%.

2. Security Market Line

Download the most recent 5 years of monthly price data for 5-stocks listed in the Dow Jones Industrial Index and SPY as a proxy for the market.

a. Compute the CAPM beta for each stock. (Assume the risk-free is zero over this time period).

b. Plot the Security Market Line (SML) assuming SPY as the market portfolio and a zero risk-free rate. Show the location of five stocks on the graph.

Textbook - Principles of Finance with Excel 3rd Edition by Simon Benninga and Tal Mofkadi.

Attachment:- Assignment File.rar

Reference no: EM132401780

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