Sheet 5Use Sheet 5 to complete the followingDateAMZN ReturnBAC ReturnMarket ReturnRisk-Free Return AMZN Excess Return*BAC Excess Return*Market Excess Return*3/1/20170.05-0.040.040.0050 0.04-0.050.034/1/20170.04-0.010.000.0050 0.04-0.02-0.015/1/20170.08-0.040.010.0050 0.07-0.040.006/1/2017-0.030.080.010.0050 -0.030.080.017/1/20170.02-0.010.000.0050 0.02-0.010.008/1/2017-0.01-0.010.020.0050 -0.01-0.010.019/1/2017-0.020.060.000.0050 -0.020.060.0010/1/20170.150.080.020.0050 0.140.080.0111/1/20170.060.030.020.0050 0.060.020.0212/1/2017-0.010.050.030.0050 -0.010.040.021/1/20180.240.080.010.0050 0.240.080.002/1/20180.040.000.060.0050 0.040.000.053/1/2018-0.04-0.07-0.040.0050 -0.05-0.07-0.044/1/20180.080.00-0.030.0050 0.08-0.01-0.035/1/20180.04-0.030.000.0050 0.04-0.030.006/1/20180.04-0.030.020.0050 0.04-0.030.027/1/20180.050.100.000.0050 0.040.090.008/1/20180.130.000.040.0050 0.130.000.039/1/20180.00-0.050.030.0050 -0.01-0.050.0310/1/2018-0.20-0.070.000.0050 -0.21-0.070.0011/1/20180.060.03-0.070.0050 0.050.03-0.0712/1/2018-0.11-0.130.020.0050 -0.12-0.140.011/1/20190.140.16-0.090.0050 0.140.15-0.102/1/2019-0.050.020.080.0050 -0.050.020.073/1/20190.09-0.050.030.0050 0.08-0.060.024/1/20190.080.110.020.0050 0.080.100.015/1/2019-0.08-0.130.040.0050 -0.08-0.140.036/1/20190.070.09-0.070.0050 0.060.09-0.077/1/2019-0.010.060.070.0050 -0.020.050.068/1/2019-0.05-0.100.010.0050 -0.05-0.110.019/1/2019-0.020.06-0.020.0050 -0.030.06-0.0210/1/20190.020.070.020.0050 0.020.070.0111/1/20190.010.070.020.0050 0.010.060.0212/1/20190.030.060.030.0050 0.020.050.031/1/20200.09-0.070.030.0050 0.08-0.070.02 SECTION 3 Average Excess Return0.02310.00560.0056 Std. Deviation of Return0.08010.07000.0354 Beta-0.4315-0.5539 Covariance**-0.00053-0.000675 ABCDEF43 PortfolioPortfolioPortfolio Nature:** Defensive/AggressiveWeight on Weight on Portfolio PortfolioStandard44 AMZNВАСReturnBetaDeviation*451Defensive460.10.9Defensive470.20.8Defensive480.30.7Defensive490.40.6Defensive500.50.5Defensive510.60.4Defensive520.70.3Defensive0.20.1530.8Defensive540.9Defensive551Defensive Draw a Characteristic Line*** for AMZNDraw a Characteristic Line*** for BACNotes:* Excess return is the return that is earned over and above the risk free return** Covariance measures the combined risk of holding two stocks at the same time. It is computed by using the Covariance function in Excel*** A characteristic line is the line of best fit which describes the scatter plot when a stock's excess return is measure on the X-Axis (Dependentvariable) and the market's excess return is measured on the Y-Axis (Independent variable). You can refer to a quick demonstration here:https://www.youtube.com/watch?v=HXO6ANAGWYQ**** For computing the standard deviation of the portfolio, the following formula should be used:2+ w?o} + 2w,w,Cov 1,21In the formula above, the left hand side of the equation signifies standard deviation of the portfolio.The greek letter sigma is the general significator of standard deviation.W, is the weight placed on the first stock in the portfolio.W, is the weight placed on the second stock in the portfolio.Cov12 is the covariance between the first and second stock

Portfolio Return, Risk, and Beta: A portfolio's return is the weighted average of the returns of its…

Answered: 43 Portfolio Weight on Weight on…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Sheet 5

Use Sheet 5 to complete the following

Date	AMZN Return	BAC Return	Market Return	Risk-Free Return		AMZN Excess Return*	BAC Excess Return*	Market Excess Return*
3/1/2017	0.05	-0.04	0.04	0.0050		0.04	-0.05	0.03
4/1/2017	0.04	-0.01	0.00	0.0050		0.04	-0.02	-0.01
5/1/2017	0.08	-0.04	0.01	0.0050		0.07	-0.04	0.00
6/1/2017	-0.03	0.08	0.01	0.0050		-0.03	0.08	0.01
7/1/2017	0.02	-0.01	0.00	0.0050		0.02	-0.01	0.00
8/1/2017	-0.01	-0.01	0.02	0.0050		-0.01	-0.01	0.01
9/1/2017	-0.02	0.06	0.00	0.0050		-0.02	0.06	0.00
10/1/2017	0.15	0.08	0.02	0.0050		0.14	0.08	0.01
11/1/2017	0.06	0.03	0.02	0.0050		0.06	0.02	0.02
12/1/2017	-0.01	0.05	0.03	0.0050		-0.01	0.04	0.02
1/1/2018	0.24	0.08	0.01	0.0050		0.24	0.08	0.00
2/1/2018	0.04	0.00	0.06	0.0050		0.04	0.00	0.05
3/1/2018	-0.04	-0.07	-0.04	0.0050		-0.05	-0.07	-0.04
4/1/2018	0.08	0.00	-0.03	0.0050		0.08	-0.01	-0.03
5/1/2018	0.04	-0.03	0.00	0.0050		0.04	-0.03	0.00
6/1/2018	0.04	-0.03	0.02	0.0050		0.04	-0.03	0.02
7/1/2018	0.05	0.10	0.00	0.0050		0.04	0.09	0.00
8/1/2018	0.13	0.00	0.04	0.0050		0.13	0.00	0.03
9/1/2018	0.00	-0.05	0.03	0.0050		-0.01	-0.05	0.03
10/1/2018	-0.20	-0.07	0.00	0.0050		-0.21	-0.07	0.00
11/1/2018	0.06	0.03	-0.07	0.0050		0.05	0.03	-0.07
12/1/2018	-0.11	-0.13	0.02	0.0050		-0.12	-0.14	0.01
1/1/2019	0.14	0.16	-0.09	0.0050		0.14	0.15	-0.10
2/1/2019	-0.05	0.02	0.08	0.0050		-0.05	0.02	0.07
3/1/2019	0.09	-0.05	0.03	0.0050		0.08	-0.06	0.02
4/1/2019	0.08	0.11	0.02	0.0050		0.08	0.10	0.01
5/1/2019	-0.08	-0.13	0.04	0.0050		-0.08	-0.14	0.03
6/1/2019	0.07	0.09	-0.07	0.0050		0.06	0.09	-0.07
7/1/2019	-0.01	0.06	0.07	0.0050		-0.02	0.05	0.06
8/1/2019	-0.05	-0.10	0.01	0.0050		-0.05	-0.11	0.01
9/1/2019	-0.02	0.06	-0.02	0.0050		-0.03	0.06	-0.02
10/1/2019	0.02	0.07	0.02	0.0050		0.02	0.07	0.01
11/1/2019	0.01	0.07	0.02	0.0050		0.01	0.06	0.02
12/1/2019	0.03	0.06	0.03	0.0050		0.02	0.05	0.03
1/1/2020	0.09	-0.07	0.03	0.0050		0.08	-0.07	0.02
				SECTION 3	Average Excess Return	0.0231	0.0056	0.0056
				Std. Deviation of Return	0.0801	0.0700	0.0354
				Beta	-0.4315	-0.5539
				Covariance**	-0.00053	-0.000675

A
B
C
D
E
F
43 Portfolio
Portfolio
Portfolio Nature:
** Defensive/Aggressive
Weight on Weight on Portfolio Portfolio
Standard
44 AMZN
ВАС
Return
Beta
Deviation*
45
1
Defensive
46
0.1
0.9
Defensive
47
0.2
0.8
Defensive
48
0.3
0.7
Defensive
49
0.4
0.6
Defensive
50
0.5
0.5
Defensive
51
0.6
0.4
Defensive
52
0.7
0.3
Defensive
0.2
0.1
53
0.8
Defensive
54
0.9
Defensive
55
1
Defensive

Draw a Characteristic Line*** for AMZN
Draw a Characteristic Line*** for BAC
Notes:
* Excess return is the return that is earned over and above the risk free return
** Covariance measures the combined risk of holding two stocks at the same time. It is computed by using the Covariance function in Excel
*** A characteristic line is the line of best fit which describes the scatter plot when a stock's excess return is measure on the X-Axis (Dependent
variable) and the market's excess return is measured on the Y-Axis (Independent variable). You can refer to a quick demonstration here:
https://www.youtube.com/watch?v=HXO6ANAGWYQ
**** For computing the standard deviation of the portfolio, the following formula should be used:
2
+ w?o} + 2w,w,Cov 1,2
1
In the formula above, the left hand side of the equation signifies standard deviation of the portfolio.
The greek letter sigma is the general significator of standard deviation.
W, is the weight placed on the first stock in the portfolio.
W, is the weight placed on the second stock in the portfolio.
Cov12 is the covariance between the first and second stock

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