This exercise is designed to take you through portfolio returns and standard deviation calculations using

historical stock price data.

Steps :

1. Collect monthly stock price data for the past five years for two publicly traded companies.

You can get monthly stock prices from

Yahoo! Finance. Once you are on the company webpage in

Yahoo! Finance, go to Historical Data. For Time Period, choose 5Y; for Frequency, choose Monthly. You

can now download this data as a .csv file (in Excel). Download for both companies, and retain the Date

column and the Adj Close column. (Make sure that the date columns for both stocks match up.)

2. Calculate monthly returns for both stocks. Note: The Adjusted Close incorporates dividends, so you do

not need to separately account for dividends in the return calculations.

3. Calculate the average return and standard deviation for both stocks during the five-year time period.

4. Calculate monthly portfolio returns with the following portfolio weights (each one should be set up in

a separate column):

1: 100% in Stock 1, 0% in Stock 2

2: 80% in Stock 1, 20% in Stock 2

3: 60% in Stock 1, 40% in Stock 2

4: 40% in Stock 1, 60% in Stock 2

5: 20% in Stock 1, 80% in Stock 2

6: 0% in Stock 1, 100% in Stock 2

5. Provide a table with average portfolio returns and portfolio standard deviations for each of the 6

portfolios described in (4).

6. Answer the following question. Did combining the stocks provide you with any diversification

benefits? Describe how.

7. For extra credit (worth 5 points). Using the results from (5) above, construct an investment

opportunity frontier chart (Excel graph) based on your two stocks.