Question: . Use data in the FIN 223 Final Exam.xlsx spreadsheet on Moodle. It contains the monthly returns for RIO and BKL, the market (RM) and

. Use data in theFIN 223 Final Exam.xlsxspreadsheet on Moodle. It contains the monthly returns for RIO and BKL, the market (RM) and the risk-free asset (RF) from January 2011 to December 2015.

a) Estimate the alpha, beta and idiosyncratic risk for RIO and BKL for the full sample from January 2011 to December 2015. Compare and discuss the differences in these three variables between the two stocks. (8 marks)

b) What is the beta and idiosyncratic risk of a portfolio with 60% in RIO and 40% in BKL? (3 marks)

c) Is the portfolio in part b) more or less risky than the market? Why or why not? (4 marks)

d) Based on your analysis, which stock would you expect to perform better during an economic downturn and which stock would you expect to perform better during an economic recovery? Why? (4 marks)

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