2) The CAPM in practice In this question, we will apply the main concepts of the CAPM using actual data. Choose a financial stock and a stock from a utility company. You can find a list of financial or utility stocks in the tab "Industries" of the Yahoo! Finance website. You can use the same proxies for the market return and risk-free rate used in class 1. Create a variable called data containing the monthly excess return on the market and on the two stocks from 2017 to 2022. Report the mean and standard-deviation for all the variables in your data. Multiply the mean by 12 and the standard deviation by 12. 2. Generate two time series plots: i) a plot with the time series of excess returns for the three series (the market and the two individual stocks); ii) a plot with the time series of cumulative excess returns for the three series. Add a title and a legend to each plot. Hint: to plot the cumulative excess series (the sum of the excess return from the beginning o the sample), use the command plot(cumsum(data)) instead of plot(data) 3. Generate a scatterplot of market versus individual stock returns for each of the stocks of your choice. Which stock seems to be more correlated with the market? 4. Estimate and report the alpha and beta for each stock. Test (separately) whether alpha is significantly different from zero, at the significance level of 5%. 5. Create a 95% confidence interval for beta. Is it possible to reject the hypothesis that beta is equal to one? 6. Compute the fraction of variance explained by idiosyncratic shocks. Discuss the differences between financial and utilities in terms of the importance of idiosyncratic (diversifiable) shocks and how this potentially impacts average returns,