Your first assignment is to create a portfolio for a client by selecting two stocks of Tesla (TSLA) and Microsoft (MSFT) on the NASDAQ market based on the data between 2014 to 2019.

1. Calculate annual returns for Tesla, Microsoft, and the Market Index, and then calculate average returns over the five-year period.
2. Calculate the standard deviation of the returns for Tesla, Microsoft, and the Market Index.
3. Construct a scatter diagram graph that shows Teslas and Microsofts returns on the vertical axis and the Market Indexs returns on the horizontal axis.
4. Estimate Teslas and Microsofts betas as the slopes of regression lines with stock returns on the vertical axis (y-axis) and market return on the horizontal axis (x-axis). Are these betas consistent with your graph?
5. You need to determine the risk-free rate. What is average the long-term T-bill yield from 2014 to 2019? Assume that the market risk premium is 3.5%. What is the expected return on the market? Now use the SML equation to calculate the two companies' required returns.
6. If you formed a portfolio that consisted of 50% Company 1 stock and 50% Company 2 stock, what would be its beta and its required return?
7. Suppose an investor wants to include any one of the two stocks that you recommended in his or her portfolio. Stocks A, B, and C are currently in the portfolio, and their betas are 0.769, 0.985, and 1.423, respectively. Recommend a stock from the two stocks youve selected to her/him and calculate the new portfolios required return if it consists of 25% of the company youve recommended, 15% of Stock A, 40% of Stock B, and 20% of Stock C.