Using the data from Chapter 1 for Large Stocks and Long-term U.S. Government bonds, calculate:

1. The expected return assuming that the past returns represent the expected future returns
2. Calculate the standard deviation of each portfolio
3. Calculate the expected return for a portfolio weight 50% in each security
4. Calculate the standard deviation of the portfolio from a combination of the two assets
5. Calculate the minimum variance portfolio for a combination of the two assets
6. Plot the efficient frontier including the minimum variance portfolio

7. Now assume there is a risk-free asset with a return of 3%.
   1. Create the new efficient frontier
   2. Identify the weights of the risky assets in the market portfolio
   3. Assume an investor has a coefficient of relative risk aversion of 10. Find the investors optimal complete portfolio.

TABLE 1.1 Year-to-Year Total Returns: 1926-2015 LONG-TERM LARGE-COMPANY U.S. GOVERNMENT U.S. TREASURY STOCKS BONDS BILLS 11.14% 8.26% 3.30% CONSUMER PRICE INDEX -1.12% YEAR 1926 1927 1928 11.15% 3.15% -2.26% 37.13% 43.31% -1.90% 4.05% -1.16% 1929 -8.91% 5.41% 4.47% 0.58% 1930 -25.26% 2.27% 6.08% -9.26% -6.40% -9.32% 1.15% 15.37% 0.88% -10.27% | 0.76% -0.04% 0.52% 0.27% 1931 1932 1933 1934 1935 1936 1937 1938 -43.86% -8.85% 52.88% -2.34% 47.22% 32.80% -35.26% 33.20% 1.52% 2.99% 0.17% 14.16% 6.24% 9.05% -0.69% 6.96% 0.17% 1.45% 2.86% 0.27% 0.06% -2.78% 1939 -0.91% 6.34% 0.04% 0.00% 1940 -10.08% 11.88% 0.04% 0.71% | 1941 -11.77% -10.51% 10.14% 9.93% 2.70% 10.34% 9.03% 2.50% 12.96% 1942 | 1943 1944 1945 21.07% 25.76% 19.69% 36.46% 10.38% 10.38% 2.94% 2.30% 5.69% 0.38% 2.25% 1946 -8.18% 4.41% | 0.38% 18.13%, 1947 5.24% -1.77% 0.62% 8.84% | 1948 5.10% 2.03% 11.06% 12.99% 7.91% 1.12% 1.22% -2.07% 5.93% -2.12% | 1949 | 1950 | 1951 | 1952 18.06% 30.58% 24.55% 18.50% -4.64% 1.56% 6.00% |1.69% 1.75% 0.75% | 1953 -1.10% 1.87% 10.75% -1.54% 8.77% 1954 52.40% 0.93% -0.74% -1.63% 1.80% | 0.37% 1955 | 1956 1957 31.43% 6.63% -10.85% -4.04% 12.66%, | 2.99% 3.28% 2.90% 5.44% -7.80% 1958 43.34% 1.71% 1.76% 1959 11.90% -1.81% 3.48% 1.73% 1960 0.48% 18.04% 2.81% 1.36% 196126.81% 2.94% 2.40% 0.67% | 1962 -8.78% 4.67% 2.82% 1.33% 1963 22.69% 1.14% 3.23% | 1.64% 1964 16.36% 4.45% 3.62% 10.97% | 1965 12.36% 1.15% 4.06% 1.92% | 1966 -10.10% -2.01% 4.94% 3.46% 1967 23.94% -7.02% 4.39% 3.04% | 5.36% 5.49% 14.72% | 1968 | 1969 | 1970 11.00% -8.47% 3.94% -0.67% 16.90% 16.20% 12.24% 6.50% 5.57% LONG-TERM U.S. GOVERNMENT U.S. TREASURY BONDS BILLS LARGE-COMPANY STOCKS : CONSUMER PRICE INDEX YEAR 1971 14.30% 12.67% 4.36% 3.27% 3.41% 1972 18.99% 9.15% 4.23% -14.69% -12.66% 7.29% 8.71% -3.05% 7.99% 12.34% 4.86% 5.87% 6.94% 1973 1974 1975 1976 1977 1978 -26.47% 37.23% 23.93% -7.16% 6.57% 17.86% 5.07% 4.86% 2.57% 5.45% 6.70% -1.61% 7.64% 9.02% 1979 18.61% -2.08% 10.56% 13.29% 1980 32.50% -4.96% 12.10% 12.52% 1981 -4.92% 0.69% 14.60% 8.92% 1982 21.55% 47.14% 10.94% 3.83% 8.99% 3.79% 1983 1984 1985 22.56% 6.27% 31.73% -1.14% 16.29% 36.59% 9.90% 3.95% 7.71% 3.80% 30.93% 6.09% 1.10% 1986 1987 -7.14% 4.43% 15.88% 6.94% | 1988 18.75% | 4.42% | 8.44% 4.65% 21.30% 5.66% 19.47% 7.69% 16.11% 18.67% 5.25% 16.61% 31.69% -3.10% 30.47% 7.62% 10.08% 1.32% 37.58% 22.96% 5.43% 3.06% 18.08% 3.48% 1989 1990 1991 1992 1993 1994 1995 | 1996 2.90% 21.53% 3.03% 2.75% -10.64% | 4.39% 2.67% 35.66% 5.61% | 2.54% -2.54% 3.32% 1997 33.36% 17.70%, 15.14% 5.19% 4.86% 1.70% 1.61% 1998 19.22% 28.58% 21.04% -12.76% 14.80%, 2.68% 1999 | 2000 -9.10% 22.16% 5.98% 3.39% 5.32% 14.23% 1.51% 10.53% 3.33% 1.61% 1.03% 1.55% 2.38% 1.88% 1.43% 3.26% 10.56% 3.30% 3.42% 0.11% 2.54% 4.97% 4.52% 11.07% 4.08% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -11.89% -22.10% 28.68% 10.88% 4.91% 15.80% 5.49% -37.00% 26.46% 15.06% 2.11% 16.00% 32.39% 13.69% 1.38% 41.78% 1.24% 0.09% 2.72% 1.50% -25.61% 7.73% 35.75% 1.80% 0.15% 0.14% 0.06% 0.08% 2.96% 1.74% -14.69% 0.05% 1.50% 29.76% -2.61% 0.03% 0.06% 0.76% 0.73% TABLE 1.1 Year-to-Year Total Returns: 1926-2015 LONG-TERM LARGE-COMPANY U.S. GOVERNMENT U.S. TREASURY STOCKS BONDS BILLS 11.14% 8.26% 3.30% CONSUMER PRICE INDEX -1.12% YEAR 1926 1927 1928 11.15% 3.15% -2.26% 37.13% 43.31% -1.90% 4.05% -1.16% 1929 -8.91% 5.41% 4.47% 0.58% 1930 -25.26% 2.27% 6.08% -9.26% -6.40% -9.32% 1.15% 15.37% 0.88% -10.27% | 0.76% -0.04% 0.52% 0.27% 1931 1932 1933 1934 1935 1936 1937 1938 -43.86% -8.85% 52.88% -2.34% 47.22% 32.80% -35.26% 33.20% 1.52% 2.99% 0.17% 14.16% 6.24% 9.05% -0.69% 6.96% 0.17% 1.45% 2.86% 0.27% 0.06% -2.78% 1939 -0.91% 6.34% 0.04% 0.00% 1940 -10.08% 11.88% 0.04% 0.71% | 1941 -11.77% -10.51% 10.14% 9.93% 2.70% 10.34% 9.03% 2.50% 12.96% 1942 | 1943 1944 1945 21.07% 25.76% 19.69% 36.46% 10.38% 10.38% 2.94% 2.30% 5.69% 0.38% 2.25% 1946 -8.18% 4.41% | 0.38% 18.13%, 1947 5.24% -1.77% 0.62% 8.84% | 1948 5.10% 2.03% 11.06% 12.99% 7.91% 1.12% 1.22% -2.07% 5.93% -2.12% | 1949 | 1950 | 1951 | 1952 18.06% 30.58% 24.55% 18.50% -4.64% 1.56% 6.00% |1.69% 1.75% 0.75% | 1953 -1.10% 1.87% 10.75% -1.54% 8.77% 1954 52.40% 0.93% -0.74% -1.63% 1.80% | 0.37% 1955 | 1956 1957 31.43% 6.63% -10.85% -4.04% 12.66%, | 2.99% 3.28% 2.90% 5.44% -7.80% 1958 43.34% 1.71% 1.76% 1959 11.90% -1.81% 3.48% 1.73% 1960 0.48% 18.04% 2.81% 1.36% 196126.81% 2.94% 2.40% 0.67% | 1962 -8.78% 4.67% 2.82% 1.33% 1963 22.69% 1.14% 3.23% | 1.64% 1964 16.36% 4.45% 3.62% 10.97% | 1965 12.36% 1.15% 4.06% 1.92% | 1966 -10.10% -2.01% 4.94% 3.46% 1967 23.94% -7.02% 4.39% 3.04% | 5.36% 5.49% 14.72% | 1968 | 1969 | 1970 11.00% -8.47% 3.94% -0.67% 16.90% 16.20% 12.24% 6.50% 5.57% LONG-TERM U.S. GOVERNMENT U.S. TREASURY BONDS BILLS LARGE-COMPANY STOCKS : CONSUMER PRICE INDEX YEAR 1971 14.30% 12.67% 4.36% 3.27% 3.41% 1972 18.99% 9.15% 4.23% -14.69% -12.66% 7.29% 8.71% -3.05% 7.99% 12.34% 4.86% 5.87% 6.94% 1973 1974 1975 1976 1977 1978 -26.47% 37.23% 23.93% -7.16% 6.57% 17.86% 5.07% 4.86% 2.57% 5.45% 6.70% -1.61% 7.64% 9.02% 1979 18.61% -2.08% 10.56% 13.29% 1980 32.50% -4.96% 12.10% 12.52% 1981 -4.92% 0.69% 14.60% 8.92% 1982 21.55% 47.14% 10.94% 3.83% 8.99% 3.79% 1983 1984 1985 22.56% 6.27% 31.73% -1.14% 16.29% 36.59% 9.90% 3.95% 7.71% 3.80% 30.93% 6.09% 1.10% 1986 1987 -7.14% 4.43% 15.88% 6.94% | 1988 18.75% | 4.42% | 8.44% 4.65% 21.30% 5.66% 19.47% 7.69% 16.11% 18.67% 5.25% 16.61% 31.69% -3.10% 30.47% 7.62% 10.08% 1.32% 37.58% 22.96% 5.43% 3.06% 18.08% 3.48% 1989 1990 1991 1992 1993 1994 1995 | 1996 2.90% 21.53% 3.03% 2.75% -10.64% | 4.39% 2.67% 35.66% 5.61% | 2.54% -2.54% 3.32% 1997 33.36% 17.70%, 15.14% 5.19% 4.86% 1.70% 1.61% 1998 19.22% 28.58% 21.04% -12.76% 14.80%, 2.68% 1999 | 2000 -9.10% 22.16% 5.98% 3.39% 5.32% 14.23% 1.51% 10.53% 3.33% 1.61% 1.03% 1.55% 2.38% 1.88% 1.43% 3.26% 10.56% 3.30% 3.42% 0.11% 2.54% 4.97% 4.52% 11.07% 4.08% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -11.89% -22.10% 28.68% 10.88% 4.91% 15.80% 5.49% -37.00% 26.46% 15.06% 2.11% 16.00% 32.39% 13.69% 1.38% 41.78% 1.24% 0.09% 2.72% 1.50% -25.61% 7.73% 35.75% 1.80% 0.15% 0.14% 0.06% 0.08% 2.96% 1.74% -14.69% 0.05% 1.50% 29.76% -2.61% 0.03% 0.06% 0.76% 0.73%