THE RISK AND RETURN CALCULATION

Students will download the relevant stock prices for two companies from the Internet and perform risk and return calculations for the selected companies.

The purpose of this assignment is to provide students with the opportunity to:

1. Retrieve real time financial data via the Web;
2. Calculate the risk and return of selected stocks;
3. Construct a portfolio;
4. Calculate the portfolios expected risk and return;
5. Link risk return tradeoff to risk preference.

Students are instructed to follow the path shown below to retrieve the risk and return for the selected companies via Qatar Stock Exchange.

• Go to Qatar stock exchange website: www.qe.com.qa
• From the menu, click on Publications then Archived Trading reports
• Choose the 2020 monthly trading reports and hit submit, and then download the closing prices.

Requirements:

1. Compute the expected return and standard deviation for the portfolios 1 & 2 by completing the below table. Portfolio 1 contains the risk-free asset and stock 1 whereas portfolio 2 contains the risk-free asset and stock 2. Assume a risk-free rate of 0.5%.

Weight invested in Stock 1	portfolio 1 expected return	Portfolio 1 standard deviation	Weight invested in Stock 2	portfolio 2 expected return	Portfolio 2 standard deviation
0%			0%
10%			10%
20%			20%
30%			30%
40%			40%
50%			50%
60%			60%
70%			70%
80%			80%
90%			90%
100%			100%

2. Plot on the same graph the expected return of both portfolios as a function of their risk.
3. Based on the graph, explain how we can see the tradeoff between risk and return and identify which stock you would prefer to combine with the risk-free asset. What motivates your preference?