Question 1:

The tab-delimited text file C323_A1_S5_2015_Q1_Q2.txt contains data on the share price of Apple Inc., the share price of Microsoft Corporation, and the Standard & Poor's 500 Index. The file also includes the simple weekly return on Apple shares (R1), the weekly return on Microsoft shares (R2), and the weekly return on the S&P500 Index (RM).

1(a) Using the share returns for the period 6 June 2011 to 2 June 2014, and the methods you have studied in Unit 1, construct a portfolio consisting of Apple shares and Microsoft shares. Justify your choices.

1(b) For the portfolio you formed in part (a), examine the performance over the period 9 June 2014 to 1 June 2015. Comment on your results.

Question 2:

Using the share returns and the return on the market index for the period 6 June 2011 to 2 June 2014. estimate the parameters of the single-index model for Apple and for Microsoft

R_i = α + βR_m + e_i

where R_i is the return on asset i (i = 1 for Apple and i = 2 for Microsoft), R_m is the return on the market index, and e_i is a random disturbance.

Question 3:

In March 2015 the yield on ten-year bonds issued by the government in Greece was 10.5 per cent. In April 2015 the yield was 12 per cent. Predict the effect of these changes in yield on the price of the ten-year government bonds.

Attachment:- C323 A1 S5 2015 Q1 Q2.txt