This assignment comprises 15% of the assessment for ETF5952. This is an individual, NOT a syndicate assignment.

It consists of TWO questions. You need to attempt Both TWO Questions and start from a new page for each question. Your assignment must be typed and you must submit a pdf file (A4 pages)

Academic Integrity/plagiarism: You can achieve academic integrity by honestly submitting work that is your own.  Presenting work that fails to ac- knowledge other people’s work within yours can compromise academic integrity. On the Assignment Cover Sheet, read the references to plagiarism and collusion from University Statute 4.1. Part III-Academic Misconduct.

Submission guidelines:  Submit one pdf file and one R script. Do attach R scripts or oR code in pdf file. Do not submit your assignment in a folder.

You should summarize what you obtain to answer questions. If you provide too many outputs relative to questions and we cannot find your answer exactly, your answer would be subject to point deduction.

Late Submission: Work submitted within 7 calendar days of a due (or an approved amended due) date may be accepted in exceptional circumstances. For each day that it is late, 10% of Assignment’s allocated marks will be deducted. Work submitted beyond 7 calendar days of a due date will be assessed as 0%.

The dataset stock.csv contains daily prices of two stocks,

BHP: Adjusted closing prices on BHP (Mining company);

CBA: Adjusted closing prices on CBA (Financial company);

You will use this dataset to answer both Question 1 and Question 2.

Question 1 (10+10+10+10+10=50 points)

(a) Provide time series plots for both stocks.  Comment on the plots (no more than 30 words).

(b) Obtain the continuously compounded returns for both stocks and provide time series plots with 1, 2 and 3 standard deviations lines.  Comment on the plots (no more than 30 words).

(c) Provide histograms of returns with 1, 2 and 3 standard deviations lines. Comment on the histograms (no more than 30 words).

(d) Let R1 and R2 denote for continuously compounded returns for BHP and CBA, respectively.  Consider a portfolio with its return Rp  = 0.6R1  + 0.4R2 . Provide histograms of portfolio returns with 1, 2 and 3 standard deviations lines. Comment on the histograms (no more than 30 words).

(e) For each of these three returns, obtain the expected values and variances. If you are a financial planner, what investment suggestions could you provide to your customer? (no more than 40 words).