Consider Table $3$ which presents five years of annual returns for stocks $1,2,$ and the market.

$($a$)$ Calculate the sample $($ex$-$post$)$ return and variance for stocks $1$ and $2.$ Calculate the $($sample$)$

ex$-$post covariance and correlation between the returns on stocks $1$ and $2.$

$($b$)$ Using the single index model, calculate alpha, beta, expected return, systematic, and residual

risk for stocks $1$ and $2.$

$($c$)$ Use the data calculated in part $($a$)$ of this question. Form a portfolio of stocks $1$ and $2.$ Calculate

the expected return and variance of an equally weighted and minimum variance portfolio of

stocks $1$ and $2.$

$($d$)$ Graphically illustrate various combinations of portfolio risk and return that can be generated by

investing in stocks $1$ and $2.$