Question: Data Range: Monthly, from 2010 1/1 to 2013 3/31 (39 monthly prices and 38 monthly returns) 1. First Pair: S&P500 index (^GSPC) and EAFE (VEA:

Data Range: Monthly, from 2010 1/1 to 2013 3/31 (39 monthly prices and 38 monthly returns)

1. First Pair: S&P500 index (^GSPC) and EAFE (VEA: Vanguard EAFE EFT).

Question 1: Is international diversification better? If yes, what are the optimal weights to minimize the risk? If the answer is no, why? Defend your answer.

2. Second Pair: Russel 2000 index for small firms (^RUT) and Amazon.com INC (AMZN).

Question 2: If you choose to hold 90% of your investment in Russel 2000 and 10% of your investment in Amazon to become a portfolio A, what is your portfolio As return and standard deviation?

Question 3: If you choose to hold 70% of your investment in Russel 2000 and 30% of your investment in Amazon to become a portfolio B, what is your portfolio Bs return and standard deviation?

Question 4: Which portfolio is preferred? Why?

Question 5: If there is one optimal portfolio which can minimize the risk, what are the weights, Portfolio Returns, and Portfolio Standard deviation?

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