Reference no: EM132459786
Problem: Go to finance.yahoo.com and download monthly adjusted closing prices for BP, MCD and AAPL from December of 2014 until December of 2017. Download closing prices for the S&P 500 index (ticker ^GSPC) over the same period. Bring all prices in one spreadsheet and sort from oldest to newest, if the date is not already sorted in this manner.
Calculate monthly returns for all four assets, expected monthly and annualized return, monthly and annualized variance and standard deviation, covariances and correlations among all pairs of the three stocks. Using the S&P 500 as the market index calculate the beta of all three stocks using all the returns from December of 2014-December of 2017. After you complete these calculations, answer the following questions:
Q1) Which stock has the higher total risk and which has the highest systematic risk, which has the lowest? Explain your answer
Q2) Which stock has the lowest total risk per unit of return? Explain your answer.
Assume you invest in a portfolio of the three stocks by investing 20% of your money in BP, 45% in MCD and 35% in AAPL. Calculate the Expected return and variance of your portfolio (hint: look at the "Basic Portfolio Statistics" ppt for the return and variance formula. Calculate the portfolio's beta and answer the following question:
Q3) How does the portfolio risk (total and systematic) compare with the riskiness of the three individual stocks?
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