Below is the monthly returns of Delta and IBM. Assume that the risk free (monthly) rate is 0.0015. Using the calculations (the mean for each stock is the expected return) plot (i) Return-Standard Deviation diagram and (ii) Sharpe ratio across different weights.) The weight for one asset ranges from -1 to 2. Comment. What is the weight of the optimal risky portfolio? Comment.

	Delta	IBM
Jan-83	0.04	0.027
Feb-83	0.027	0.01
Mar-83	-0.016	0.028
Apr-83	-0.043	0.15
May-83	-0.045	-0.041
Jun-83	0.012	0.081
Jul-83	-0.259	0.001
Aug-83	0.08	0.001
Sep-83	0.041	0.062
Oct-83	0.039	-0.001
Nov-83	0.12	-0.066
Dec-83	-0.028	0.039
Jan-84	-0.013	-0.065
Feb-84	-0.117	-0.026
Mar-84	0.065	0.034
Apr-84	-0.085	-0.002
May-84	-0.07	-0.044
Jun-84	-0.012	-0.019
Jul-84	0.045	0.047
Aug-84	0.04	0.127
Sep-84	0.008	0.004
Oct-84	0.161	0.012
Nov-84	-0.026	-0.023
Dec-84	0.156	0.011
Jan-85	-0.01	0.108
Feb-85	0.087	-0.009
Mar-85	-0.003	-0.052
Apr-85	-0.123	-0.004
May-85	0.179	0.025
Jun-85	0.021	-0.038
Jul-85	0.008	0.062
Aug-85	-0.066	-0.028
Sep-85	-0.112	-0.022
Oct-85	-0.083	0.048
Nov-85	0.02	0.085
Dec-85	0.03	0.113
Jan-86	0.122	-0.026
Feb-86	-0.055	0.003
Mar-86	0.076	0.004
Apr-86	0.059	0.031
May-86	-0.043	-0.018
Jun-86	-0.07	-0.039
Jul-86	0.018	-0.096
Aug-86	0.018	0.055
Sep-86	0.026	-0.031
Oct-86	0.134	-0.081
Nov-86	-0.018	0.037
Dec-86	-0.01	-0.056
Jan-87	0.161	0.073
Feb-87	0.133	0.092
Mar-87	-0.129	0.076
Apr-87	-0.121	0.067
May-87	0.151	0.006
Jun-87	0.014	0.016
Jul-87	0.043	-0.009
Aug-87	-0.037	0.053
Sep-87	-0.067	-0.105
Oct-87	-0.26	-0.187
Nov-87	-0.137	-0.087
Dec-87	0.121	0.043

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Answer rating: 100% (QA)

Answer To solve this problem we need to calculate the mean standard deviation and Sharpe ratio for each stock and then plot the returnstandard deviati... View the full answer