create a spreadsheet.

7-2 The data below are annual total retums for General Foods (GF) and Sigma Technology (ST) for the period 1997-2011. Sigma Technology is highly regarded by many investors for its innovative products. It had returns more than twice as large as that of General Foods. What would have been the results if an investor had placed half her funds in General Foods and halt in Sigma Technology during this 15-year period in order to try to cam a larger return than that available in General Foods alone? Would the risk have been too large? 2. Calculate the arithmetic mean returns for each stock b. Calculate the standard deviation for each stock using the STDEV function in the spreadsheet c. Calculate the correlation coefficient using the CORREL function in the spreadsheet. d. Calculate the covariance using the COVAR function in the spreadsheet e. Calculate the portfolio return assuming equal weights for each stock PORTFOLIO THEORY 1. Set up a calculation for the standard deviation of the portfolio that will allow you to substitute different values for the correlation coefficient or the standard deviations of the stocks. Using equal weights for the two stocks, calculate the standard deviation of the portfolio consisting of equal parts of the two stocks g. How does the portfolio return compare to the retum on General Foods alone? How does the risk of the portfolio compare to the risk of having held General Foods alone? h. Assume that the correlation between the two stocks had been -0.10. How much would portfolio nisk have changed relative to the result calculated inf? GF ST 0.222 0029 -0220 0527 -0628 0684 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 -0.141 0.203 -0036 -0204 0.073 -0.111 0.023 0.291 0448 0.482 0.196 0.103 0.075 0.780 0.254 0.564 0.885 0433 0516 -0056 0.153 1.207 0736