1. (10pts) What is the expected return and standard deviation of a portfolio that is totally invested in the risk-free rate
2. (10pts) What is the expected return and standard deviation of a portfolio that has weight ω = 0.5 on the risk-free rate and 1 ? ω = 0.5 in the S&P 500index?
3. (10pts) What are the weights on a portfolio, ω for investing in the risk-free rateand 1 ? ω for investing in the S&P 500 index, that produce a standard deviation that is 0.04? What is the expected return on that portfolio?
Q2. (20pts) Read Fama and French (2004) carefully and summarize the paper in one page (at least four paragraphs).
Q3. (80pts) Portfolio choice (coding exercise)
Download “stocks.xlsx.” You will find 3 stock prices (labeled “market, A, B”) and 3 factors (labeled “riskfree, smb, hml”) in the range of 2011:M12 to 2021:M2.
1. (20pts) Let the log return for stock i be ri,t at time t. Provide the sample mean and standard deviation for rM,t, rA,t,rB,t where 2012:M1 ≤t≤ 2021:M2. Forconvenience, “M” refers to “market.”