You have $50,000 in cash and you would like to allocate it between the common stock of American International Group, Inc. (AIG) and Citigroup, Inc. (C) or (CITI). Before making your investment, you have decided to examine the past performance of these stocks under the assumption that their performance from Jan. 1, 2019 - Dec. 31, 2019 is representative of their expected future performance. Assume that the annual risk-free rate is 0.15%.

a) Using Yahoo Finance or Google Finance, download the weekly stock prices in 2019 for both firms. Using the adjusted closing price (which accounts for dividends), calculate the weekly excess return. What was the mean, standard deviation, variance, and covariance of the two series?

b) Your friend suggests that you split your money 50% in AIG and 50% in CITI. If you followed his advice in 2019, what would the weekly excess return of this portfolio have been? What would the variance of this portfolio have been?

c) What was the Sharpe Ratio for the portfolio you calculated in part ?

d) Instead of following your friend's advice, you have decided to calculate the optimal risky portfolio.

How much money (in dollars) should you invest in AIG? How much money should you invest in CITI? 

e) Using your weights from part (d), calculate the mean return and variance of this portfolio in 2019. 

f) What was the Sharpe Ratio for this portfolio?

g) The Sharpe ratio from the optimal portfolio will always be ≥ the Sharpe ratio from?

any other combination of the two assets. Briefly explain your answer?

Answer rating: 100% (QA)

a Using Yahoo Finance I found the following statistics for AIG and CITI in 2019 AIG Mean excess retu... View the full answer