GE Closing

Date
price
B1Jun-04
32.4
B1Jul-04
33.25
B1Aug-04
32.79
B1Sep-04
33.58
B1Oct-04
34.12
B1Nov-04
35.36
B1Dec-04
36.5
B1Jan-05
36.13
B1Feb-05
35.2
B1Mar-05
36.06
B1Apr-05
36.2
B1May-05
36.48
B1Jun-05
34.65
B1Jul-05
34.5
B1Aug-05
33.61
B1Sep-05
33.67
B1Oct-05
33.91
B1Nov-05
35.72
B1Dec-05
35.05
B1Jan-06
32.75
B1Feb-06
32.87
B1Mar-06
34.78
B1Apr-06
34.59
B1May-06
34.26
B1Jun-06
32.96

S&P 500
Index
1140.84
1101.72
1104.24
1114.58
1130.2
1173.82
1211.92
1181.27
1203.6
1180.59
1156.85
1191.5
1191.33
1234.18
1220.33
1228.81
1207.01
1249.48
1248.29
1280.08
1280.66
1294.87
1310.61
1270.09
1270.2

Dividend

0.2

0.22
0.22

0.22

0.22

0.25
0.25

0.25
Average
monthly
return
Average
annual
return

2.62%
-1.38%
3.02%
1.61%
3.63%
3.85%
-1.01%
-1.97%
2.44%
0.39%
0.77%
-4.41%
-0.43%
-2.58%
0.83%
0.71%
5.34%
-1.18%
-6.56%
1.13%
5.81%
-0.55%
-0.95%
-3.06%

0.34%

Average
monthly
return

4.11%

Average
annual
return
GE's Beta

0.23417

-3.43%
0.23%
0.94%
1.40%
3.86%
3.25%
-2.53%
1.89%
-1.91%
-2.01%
3.00%
-0.01%
3.60%
-1.12%
0.69%
-1.77%
3.52%
-0.10%
2.55%
0.05%
1.11%
1.22%
-3.09%
0.01%

0.47%

5.81%

Monthly
Risk Free
rate
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407
0.00407

Finding Tommy's
Change in Tommy excess return
Change in market excess return

9.0%
7.0%

According to the SML:

1.29

Market portfolio return

Market excess return

14.0%
9.0%
1.5

Risk free rate

Stock j return

5.0%
18.5%

CML, SML and Optimal Portfolios

Portfolio A
Average return
Sigma (of portfolio with market)
Market sigma
Market variance

Portfolio B

8%
5%
8%
0.64%

18%
12%

Using the SML, we need to solve 2 equations with 2 variables:

After solving:
Market risk premium
Risk free rate
Market return
Slope of CML
CML line:

0.91%
0.86%
1.77%
0.114

E ( r p ) =0 . 86+0 . 114 p

8=r f + [

[ ]

8=r f + [ E ( r m )r f ]

5
82

Date
B101-Jul-96
B101-Aug-96
B103-Sep-96
B101-Oct-96
B101-Nov-96
B102-Dec-96
B102-Jan-97
B103-Feb-97
B103-Mar-97
B101-Apr-97
B101-May-97
B102-Jun-97
B101-Jul-97
B101-Aug-97
B102-Sep-97
B101-Oct-97
B103-Nov-97
B101-Dec-97
B102-Jan-98
B102-Feb-98
B102-Mar-98
B101-Apr-98
B101-May-98
B101-Jun-98
B101-Jul-98
B103-Aug-98
B101-Sep-98
B101-Oct-98
B102-Nov-98
B101-Dec-98
B104-Jan-99
B101-Feb-99
B101-Mar-99
B101-Apr-99
B103-May-99
B101-Jun-99
B101-Jul-99
B102-Aug-99
B101-Sep-99
B101-Oct-99
B101-Nov-99
B101-Dec-99
B103-Jan-00
B101-Feb-00
B101-Mar-00
B103-Apr-00

Adj. Close
price VFINX
(S&P500)
50.67
51.74
54.64
56.14
60.39
59.2
62.89
63.39
60.76
64.38
68.3
71.34
77.02
72.7
76.68
74.11
77.52
78.84
79.72
85.45
89.81
90.71
89.13
92.76
91.78
78.5
83.53
90.35
95.84
101.4
105.66
102.36
106.45
110.55
107.91
113.9
110.34
109.79
106.78
113.54
115.84
122.77
116.6
114.37
125.54
121.76

Adj. Close price

VGEQX
5.34
5.57
6.04
6.02
6.37
6.17
6.63
6.42
6
6.27
6.74
7.03
7.8
7.62
8.04
7.74
7.91
8.04
8.01
8.62
9.02
9.2
8.91
9.7
9.52
8.73
9.08
9.06
9.87
11.12
11.96
11.34
12.02
11.95
11.65
12.35
11.96
12.34
12.23
13.4
14.51
17.17
16.82
19.35
19.48
18.12

1 Year
T-Bill
5.85%
5.67%
5.83%
5.55%
5.42%
5.47%
5.61%
5.53%
5.80%
5.99%
5.87%
5.69%
5.54%
5.56%
5.52%
5.46%
5.46%
5.53%
5.24%
5.31%
5.39%
5.38%
5.44%
5.41%
5.36%
5.21%
4.71%
4.12%
4.53%
4.52%
4.51%
4.70%
4.78%
4.69%
4.85%
5.10%
5.03%
5.20%
5.25%
5.43%
5.55%
5.84%
6.12%
6.22%
6.22%
6.15%

Monthly rate
T- Bill
0.475%
0.461%
0.473%
0.451%
0.441%
0.445%
0.456%
0.450%
0.471%
0.486%
0.476%
0.462%
0.450%
0.452%
0.449%
0.444%
0.444%
0.450%
0.427%
0.432%
0.438%
0.438%
0.442%
0.440%
0.436%
0.424%
0.384%
0.337%
0.370%
0.369%
0.368%
0.383%
0.390%
0.383%
0.395%
0.415%
0.410%
0.423%
0.427%
0.442%
0.451%
0.474%
0.496%
0.504%
0.504%
0.499%

VFINX
Return
2.11%
5.60%
2.75%
7.57%
-1.97%
6.23%
0.80%
-4.15%
5.96%
6.09%
4.45%
7.96%
-5.61%
5.47%
-3.35%
4.60%
1.70%
1.12%
7.19%
5.10%
1.00%
-1.74%
4.07%
-1.06%
-14.47%
6.41%
8.16%
6.08%
5.80%
4.20%
-3.12%
4.00%
3.85%
-2.39%
5.55%
-3.13%
-0.50%
-2.74%
6.33%
2.03%
5.98%
-5.03%
-1.91%
9.77%
-3.01%

VGEQX
Return
4.31%
8.44%
-0.33%
5.81%
-3.14%
7.46%
-3.17%
-6.54%
4.50%
7.50%
4.30%
10.95%
-2.31%
5.51%
-3.73%
2.20%
1.64%
-0.37%
7.62%
4.64%
2.00%
-3.15%
8.87%
-1.86%
-8.30%
4.01%
-0.22%
8.94%
12.66%
7.55%
-5.18%
6.00%
-0.58%
-2.51%
6.01%
-3.16%
3.18%
-0.89%
9.57%
8.28%
18.33%
-2.04%
15.04%
0.67%
-6.98%

B101-May-00
B101-Jun-00
B103-Jul-00
B101-Aug-00
B101-Sep-00
B102-Oct-00
B101-Nov-00
B101-Dec-00
B102-Jan-01
B101-Feb-01
B101-Mar-01
B102-Apr-01
B101-May-01
B101-Jun-01
B102-Jul-01
B101-Aug-01
B104-Sep-01
B101-Oct-01
B101-Nov-01
B103-Dec-01
B102-Jan-02
B101-Feb-02
B101-Mar-02
B101-Apr-02
B101-May-02
B103-Jun-02
B101-Jul-02
B101-Aug-02
B103-Sep-02
B101-Oct-02
B101-Nov-02
B102-Dec-02
B102-Jan-03
B103-Feb-03
B103-Mar-03
B101-Apr-03
B101-May-03
B102-Jun-03
B101-Jul-03
B101-Aug-03
B102-Sep-03
B101-Oct-03
B103-Nov-03
B101-Dec-03
B102-Jan-04
B102-Feb-04
B101-Mar-04
B101-Apr-04
B103-May-04

119.28
122.25
120.42
127.88
121.11
120.59
111.09
111.66
115.62
105.06
98.37
106.02
106.71
104.09
103.05
96.59
88.77
90.45
97.37
98.22
96.78
94.9
98.45
92.47
91.78
85.22
78.64
79.16
70.54
76.73
81.46
76.45
74.44
73.31
74.01
80.12
84.34
85.4
86.89
88.57
87.62
92.56
93.36
98.24
100.02
101.4
99.87
98.29
99.63

16.75
18.8
18.31
20.1
18.58
16.72
13.55
13.2
13.68
11.04
9.75
11.15
11.07
10.73
10.37
9.47
8.18
8.69
9.62
9.58
9.39
8.8
9.28
8.54
8.32
7.53
6.88
6.85
6.29
6.85
7.27
6.62
6.58
6.49
6.64
7.14
7.65
7.79
8.15
8.4
8.29
8.81
8.9
9.17
9.47
9.51
9.34
9.04
9.25

6.33%
6.17%
6.08%
6.18%
6.13%
6.01%
6.09%
5.60%
4.81%
4.68%
4.30%
3.98%
3.78%
3.58%
3.62%
3.47%
2.82%
2.33%
2.18%
2.22%
2.16%
2.23%
2.57%
2.48%
2.35%
2.20%
1.96%
1.76%
1.72%
1.65%
1.49%
1.45%
1.36%
1.30%
1.24%
1.27%
1.18%
1.01%
1.12%
1.31%
1.24%
1.25%
1.34%
1.31%
1.24%
1.24%
1.19%
1.43%
1.78%

0.513%
0.500%
0.493%
0.501%
0.497%
0.488%
0.494%
0.455%
0.392%
0.382%
0.351%
0.326%
0.310%
0.294%
0.297%
0.285%
0.232%
0.192%
0.180%
0.183%
0.178%
0.184%
0.212%
0.204%
0.194%
0.182%
0.162%
0.145%
0.142%
0.136%
0.123%
0.120%
0.113%
0.108%
0.103%
0.105%
0.098%
0.084%
0.093%
0.109%
0.103%
0.104%
0.111%
0.109%
0.103%
0.103%
0.099%
0.118%
0.147%

-2.04%
2.49%
-1.50%
6.19%
-5.29%
-0.43%
-7.88%
0.51%
3.55%
-9.13%
-6.37%
7.78%
0.65%
-2.46%
-1.00%
-6.27%
-8.10%
1.89%
7.65%
0.87%
-1.47%
-1.94%
3.74%
-6.07%
-0.75%
-7.15%
-7.72%
0.66%
-10.89%
8.78%
6.16%
-6.15%
-2.63%
-1.52%
0.95%
8.26%
5.27%
1.26%
1.74%
1.93%
-1.07%
5.64%
0.86%
5.23%
1.81%
1.38%
-1.51%
-1.58%
1.36%

-7.56%
12.24%
-2.61%
9.78%
-7.56%
-10.01%
-18.96%
-2.58%
3.64%
-19.30%
-11.68%
14.36%
-0.72%
-3.07%
-3.36%
-8.68%
-13.62%
6.23%
10.70%
-0.42%
-1.98%
-6.28%
5.45%
-7.97%
-2.58%
-9.50%
-8.63%
-0.44%
-8.18%
8.90%
6.13%
-8.94%
-0.60%
-1.37%
2.31%
7.53%
7.14%
1.83%
4.62%
3.07%
-1.31%
6.27%
1.02%
3.03%
3.27%
0.42%
-1.79%
-3.21%
2.32%

B101-Jun-04
B101-Jul-04
B102-Aug-04
B101-Sep-04
B101-Oct-04
B101-Nov-04
B101-Dec-04
B103-Jan-05
B101-Feb-05
B101-Mar-05
B101-Apr-05
B102-May-05
B101-Jun-05
B101-Jul-05
B101-Aug-05
B101-Sep-05
B103-Oct-05
B101-Nov-05
B101-Dec-05
B103-Jan-06
B101-Feb-06
B101-Mar-06
B103-Apr-06
B101-May-06
B101-Jun-06

101.55
98.19
98.56
99.61
101.12
105.21
108.78
106.11
108.34
106.43
104.39
107.7
107.84
111.83
110.81
111.69
109.82
113.95
113.98
116.99
117.29
118.74
120.33
116.84
116.99

9.32
8.64
8.45
8.67
8.86
9.28
9.66
9.28
9.31
9.17
8.94
9.47
9.47
9.91
9.84
10.05
9.89
10.42
10.42
11.03
10.86
11.05
11.03
10.44
10.39

2.12%
2.10%
2.02%
2.12%
2.23%
2.50%
2.67%
2.86%
3.03%
3.30%
3.32%
3.33%
3.36%
3.64%
3.87%
3.85%
4.18%
4.33%
4.35%
4.45%
4.68%
4.77%
4.90%
5.00%
5.16%

Beta
1.182
VGEQX is slightly more aggressive
Alpha
Annual terms

R-Squared

-0.00124
-0.01477 <<< the fund underperformed

0.67473

0.175%
0.173%
0.167%
0.175%
0.184%
0.206%
0.220%
0.235%
0.249%
0.271%
0.273%
0.273%
0.276%
0.298%
0.317%
0.315%
0.342%
0.354%
0.355%
0.363%
0.382%
0.389%
0.399%
0.407%
0.420%

1.93%
-3.31%
0.38%
1.07%
1.52%
4.04%
3.39%
-2.45%
2.10%
-1.76%
-1.92%
3.17%
0.13%
3.70%
-0.91%
0.79%
-1.67%
3.76%
0.03%
2.64%
0.26%
1.24%
1.34%
-2.90%
0.13%

0.76%
-7.30%
-2.20%
2.60%
2.19%
4.74%
4.09%
-3.93%
0.32%
-1.50%
-2.51%
5.93%
0.00%
4.65%
-0.71%
2.13%
-1.59%
5.36%
0.00%
5.85%
-1.54%
1.75%
-0.18%
-5.35%
-0.48%

Excess return Excess return

VFINX
VGEQX
1.65%
5.13%
2.29%
7.13%
-2.42%
5.78%
0.35%
-4.62%
5.47%
5.61%
3.99%
7.51%
-6.06%
5.03%
-3.80%
4.16%
1.25%
0.69%
6.76%
4.66%
0.56%
-2.18%
3.63%
-1.49%
-14.89%
6.02%
7.83%
5.71%
5.43%
3.83%
-3.51%
3.61%
3.47%
-2.78%
5.14%
-3.54%
-0.92%
-3.17%
5.89%
1.57%
5.51%
-5.52%
-2.42%
9.26%
-3.51%

3.85%
7.96%
-0.78%
5.37%
-3.58%
7.00%
-3.62%
-7.01%
4.01%
7.02%
3.84%
10.50%
-2.76%
5.06%
-4.18%
1.75%
1.19%
-0.80%
7.18%
4.20%
1.56%
-3.59%
8.43%
-2.29%
-8.72%
3.62%
-0.56%
8.57%
12.30%
7.19%
-5.57%
5.61%
-0.97%
-2.91%
5.59%
-3.57%
2.75%
-1.32%
9.13%
7.83%
17.86%
-2.53%
14.54%
0.17%
-7.48%

-2.55%
1.99%
-1.99%
5.69%
-5.79%
-0.92%
-8.37%
0.06%
3.15%
-9.52%
-6.72%
7.45%
0.34%
-2.75%
-1.30%
-6.55%
-8.33%
1.70%
7.47%
0.69%
-1.64%
-2.13%
3.53%
-6.28%
-0.94%
-7.33%
-7.88%
0.52%
-11.03%
8.64%
6.04%
-6.27%
-2.74%
-1.63%
0.85%
8.15%
5.17%
1.17%
1.65%
1.82%
-1.18%
5.53%
0.75%
5.12%
1.71%
1.28%
-1.61%
-1.70%
1.22%

-8.07%
11.74%
-3.10%
9.28%
-8.06%
-10.50%
-19.45%
-3.04%
3.24%
-19.68%
-12.04%
14.03%
-1.03%
-3.36%
-3.65%
-8.96%
-13.85%
6.04%
10.52%
-0.60%
-2.16%
-6.47%
5.24%
-8.18%
-2.77%
-9.68%
-8.79%
-0.58%
-8.32%
8.77%
6.01%
-9.06%
-0.72%
-1.48%
2.21%
7.42%
7.05%
1.75%
4.53%
2.96%
-1.41%
6.17%
0.91%
2.93%
3.17%
0.32%
-1.89%
-3.33%
2.18%

1.75%
-3.48%
0.21%
0.89%
1.33%
3.84%
3.17%
-2.69%
1.85%
-2.03%
-2.19%
2.90%
-0.15%
3.40%
-1.23%
0.48%
-2.02%
3.41%
-0.33%
2.28%
-0.13%
0.85%
0.94%
-3.31%
-0.29%

0.58%
-7.47%
-2.37%
2.43%
2.01%
4.53%
3.88%
-4.17%
0.07%
-1.77%
-2.78%
5.66%
-0.28%
4.35%
-1.02%
1.82%
-1.93%
5.01%
-0.36%
5.49%
-1.92%
1.36%
-0.58%
-5.76%
-0.90%

Annual Prices of 6 stocks, S&P 500 and risk free return rate
Date
3-Jan-95
2-Jan-96
2-Jan-97
2-Jan-98
4-Jan-99
3-Jan-00
2-Jan-01
2-Jan-02
2-Jan-03
2-Jan-04
3-Jan-05

SUN
Apple
Microsoft Microsys
9.98
3.22
1.02
6.91
5.01
2.88
4.16
11.05
3.97
4.58
16.16
5.99
10.3
37.91
13.97
25.94
42.4
39.28
10.81
26.45
30.56
12.36
27.6
10.76
7.18
20.56
3.09
11.28
24.17
5.29
38.45
25.68
4.36

Intel
4.87
6.17
7.44
22.61
23.22
27.31
10.39
20.35
20.05
26.29
24.87

Oracle
2.11
3.54
4.32
3.88
9.23
24.98
29.12
17.26
12.03
13.86
13.77

VFINX
3com
(S&P 500)
2.11
35.96
3.54
49.81
4.32
62.89
3.88
79.72
9.23
105.66
24.98
116.6
29.12
115.62
17.26
96.78
12.03
74.44
13.86
100.02
13.77
106.11

Annual returns of 6 stocks, S&P 500 and risk free return rate
Annual return
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Alpha
Beta
R-squared

SUN
Apple
Microsoft Microsys
-30.76%
55.59%
182.35%
-39.80%
120.56%
37.85%
10.10%
46.24%
50.88%
124.89%
134.59%
133.22%
151.84%
11.84%
181.17%
-58.33%
-37.62%
-22.20%
14.34%
4.35%
-64.79%
-41.91%
-25.51%
-71.28%
57.10%
17.56%
71.20%
240.87%
6.25%
-17.58%
0.34
0.51
0.01

0.12
1.81
0.46

0.13
3.30
0.55

Intel
26.69%
20.58%
203.90%
2.70%
17.61%
-61.96%
95.86%
-1.47%
31.12%
-5.40%

Oracle
67.77%
22.03%
-10.19%
137.89%
170.64%
16.57%
-40.73%
-30.30%
15.21%
-0.65%

0.24
0.55
0.03

0.18
1.39
0.18

VFINX
3com
(S&P 500)
67.77%
38.52%
22.03%
26.26%
-10.19%
26.76%
137.89%
32.54%
170.64%
10.35%
16.57%
-0.84%
-40.73%
-16.29%
-30.30%
-23.08%
15.21%
34.36%
-0.65%
6.09%
0.18
1.39
0.18

Outperform
/Underperform Outperform Outperform Outperform Outperform Outperform Outperform
Aggressive/
Defensive

Defensive

Apple
Portfolio
weights of
the 6 assets

Date
1996

0.167

Portfolio
return
61.57%

Aggressive Aggressive Defensive Aggressive Aggressive

Microsoft

0.167

SUN
Microsys

0.167

Intel

0.167

Oracle

0.167

3com

0.167

1997
1998
1999
2000
2001
2002
2003
2004
2005

30.54%
48.46%
111.86%
117.29%
-24.49%
-5.28%
-33.46%
34.57%
37.14%

The P, P, R2 of the portfolio

Alpha
Using Intercept function
Using portfolio average of stock alphas

0.1963
0.1963

Beta
Using Slope function
Using portfolio average of stock betas

1.4943
1.4943

R-squared
Using Rsq function
Using portfolio average of stock r-squareds

0.3948
0.2349

rn rate
1 Year
T-Bill
7.05%
5.09%
5.61%
5.24%
4.51%
6.12%
4.81%
2.16%
1.36%
1.24%
2.86%

ree return rate

1 Year
T-Bill
5.09%
5.61%
5.24%
4.51%
6.12%
4.81%
2.16%
1.36%
1.24%
2.86%