Paper , Order, or Assignment Requirements

Use the ‘Adj Close’ column to obtain returns for each period.

Remember that the Adjusted Close column has already adjusted the prices for dividends and stock splits so you do not have to adjust for it again. Just use the adjusted close column to obtain the

returns.

11

= −

t−

tt P PR

Solve for the following:

1. Calculate the average return, variance and standard deviation of returns of each

series. Comment on the statistics.

1. Calculate the covariance and the correlation coefficient between each of the return

series (there should be a total of three correlations and three covariances). Comment on the statistics.

1. If you were to form a portfolio that had 50% of the S&P 500 Index and 50% of Exxon Mobil, what would be the average returns and the standard deviation of that portfolio? (Ignore the fact that both Exxon may already be included in the S&P 500)
2. If you were to add Facebook, Inc to your portfolio so that you now had 33% S&P 500, 33% Exxon Mobile, and 34% Facebook, what would be the new average returns and standard deviation? (Ignore the fact that both Exxon and Facebook may already be included in the S&P 500) Is Facebook a good addition to your portfolio? Why do you think so?
3. Determine Exxon’s beta and Facebook’s beta for the Aug1 2013 – Aug 1, 2016 period. Comment on the statistics.