Question: 3. For your final task, you are required to analyze possible portfolios that can be formed with stocks from McDonald's and United Health Group. Using
3. For your final task, you are required to analyze possible portfolios that can be formed with stocks from McDonald's and United Health Group. Using data from 1990-2023, McDonald's has an average monthly return of 1.19% and a standard deviation of 5.9%. UnitedHealth Group has an average return of 2.3% and a standard deviation of 8.6%. Their correlation is 0.3 . (Hint: This problem is an extended version of the example in slide 8 of the Modern Portfollo Theory lecture) ( 50 points) a. Graph both stocks in the standard deviation ( x-axis) and expected return( y-axis) graph. If you could only invest in a portfolio that had 100% of only one stock, is there any wrong choice assuming a rational investor only cares about return and risk? (Although using software like Excel would make the graphing easier, you are not required to do it. Making the graphs by hand is perfectly acceptable) b. Obtain the standard deviation and return for portfolios constructed using the following portfolio weights: c. Use the standard deviations and returns for each portfolio obtained in the previous part, along with the returns and standard deviations for the original stocks to sketch a graph of all the possible combinations of portfolios using these 2 stocks in the standard deviation ( x-axis) and expected return(y-axis) graph. d. If you could invest in any way using these 2 stocks (all possible portfolios produce the graph you obtained in c), would a rational investor that only cares about return and risk ONLY invest in McDonald's? e. If you could invest in any way using these 2 stocks (all possible portiolios produce the graph you obtained in c), would a rational investor that only cares about return and risk ONLY invest in UnitedHealth Group
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