Test 2 Practice Questions
Answer all the questions using the data provided. You have been supplied with MONTHLY stock prices for 3 stocks as well as the index.
1. Calculate the expected return, standard deviation, and variance for each stock and the index.
2. Using the market model alpha to determine if any of the stocks had abnormal returns (when compared to the index) For this part do not run the regression…find the market model alpha using some other function.
3. Find the beta for each stock (Using the index as your proxy for the market portfolio). Do not use the regression method, try another function.
4. Find the R^2 for each stock (Using the index as your proxy for the market portfolio). Do not use the regression method, try another function.
5. Calculate abnormal returns using Jensen’s Alpha. Which stocks are over/underpriced?
6. What should the new corrected price be?
7. Find the Max ER, Min ER, and Min SD portfolios.
8. Plot out some of the main points on the minimum variance frontier. Use returns of 2%, 1.5%, 1%, .5%, .49% and .48%.
9. Plot out some of the main points on the efficient frontier. Use sd’s of 4%, 3.25%, and 1%. Remember that all points on the minimum variance frontier that are beyond the minimum variance portfolio can also be included in the efficient frontier.
10. Using a 5% risk free rate, find your optimal risky portfolio.
11. Using a 15% lending and borrowing rate find your second optimal risky portfolio.
12. Find portfolios with the following returns or standard deviations given the following borrowing/lending constraints. In a test I will ask you for a specific weight or another portfolio measure.
a. You can borrow and lend at 5%
b. You can borrow and lend at 15%
c. You can only lend at 5%
d. You can lend at 5% and borrow at 15%