Consider the monthly adjusted closing prices of Microsoft (MSFT), Exxon Mobil Corp. (XOM), P?zer (PFE) and Wal-Mart Stores Inc. (WMT) from January 3, 2011 to December 31, 2015.
1. Using Excel or any other spreadsheet software, ?nd the expected monthly rate of return and the standard deviation of each of these stocks. Moreover, ?nd the covariance of each pair these stocks.
2. Suppose that at the end of the trading day on January 4, 2016, you want to build a portfolio with these four stocks. Find the weights of the minimum variance portfolio with a total rate of return is equal to average of the expected rates of return obtained in question 1. Moreover, if on that date you have $1,000,000, deduce the number of shares of each of these stocks you will have in your portfolio.
3. Using the adjusted closing prices on June 28, 2016 to ?nd the market value of your portfolio.
4. Using the S&P 500 INDEX,(GSPC) as the Market and the same historical data (from January 3, 2011 to December 31, 2015). Compute the Beta of each of these stocks.
5. If monthly the risk-free rate is rf = 0.09, compute the Jensen and Sharpe indexes of each of these stocks. Derive the Jensen and Sharpe indexes of your portfolio. What can you conclude?