1. Most of the companies in Table 7-3 (41.0K) are covered in the Standard & Poor's Market Insight Web site (http://www.mhhe.com/edumarketinsight). Pick at least three companies. For each company, download "Monthly Adjusted Prices" as an Excel spreadsheet. Calculate each company's variance and standard deviation from the monthly returns given on the spreadsheet. The Excel functions are VAR and STDEV. Convert the standard deviations from monthly to annual units by multiplying by the square root of 12. How has the standalone risk of these stocks changed, compared with the figures reported in Table 7-3 (41.0K) ?
   
   
2. Download the "Monthly Adjusted Prices" spreadsheets for Coca-Cola, Citigroup, and Pfizer from the Standard & Poor's Market Insight Web site (http://www.mhhe.com/edumarketinsight).
   1. Calculate the annual standard deviation of returns for each company, using the most recent three years of monthly returns. Use the Excel function STDEV. Multiply by the square root of 12 to convert to annual units.
   2. Use the Excel function CORREL to calculate the correlation coefficient between the monthly returns for each pair of stocks.
   3. Calculate the standard deviation of returns for a portfolio with equal investments in each of the three stocks.
   
   
3. Most of the companies in Table 7-5 (35.0K) are covered in the Standard & Poor's Market Insight Web site (http://www.mhhe.com/edumarketinsight). For those that are covered, you can easily calculate beta. Download the "Monthly Adjusted Prices" spreadsheet, and note the columns for returns on the stock and the S&P 500 index. Beta is calculated by the Excel function SLOPE, where the "y" range refers to the company's return (the dependent variable) and the "x" range refers to the market returns (the independent variable). Calculate the betas. How have they changed from the betas reported in Table 7-5 (35.0K) ?
   
   
4. Download "Monthly Adjusted Prices" for General Motors (GM) and Harley Davidson (HDI) from the Standard & Poor's Market Insight Web site (http://www.mhhe.com/edumarketinsight).
   1. Calculate each company's beta, following the procedure described in Practice Question 11.
   2. Calculate the annual standard deviation of the market from the monthly returns for the S&P 500. Use the Excel function STDEV, and multiply by the square root of 12 to convert to annual units. Also calculate the annual standard deviations for GM and HDI.
   3. Let's assume that your answers to (a) and (b) are good forecasts. What would be the standard deviation of a well-diversified portfolio of stocks with betas equal to Harley Davidson's beta? How about a well-diversified portfolio of stocks with GM's beta?
   4. How much of the total risk of GM was unique risk? How much of HDI's?
   
   
5. In footnote 29 we gave the formula for the covariance. The following table shows a worked example of how to calculate the covariance and correlation coefficient between the returns on two stocks:

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   Now use the monthly adjusted prices for General Motors and Harley Davidson that you downloaded for Practice Question 14 (at http://www.mhhe.com/edumarketinsight) and calculate the covariance and correlation coefficient between the two sets of returns.

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