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Assignment 3: For the following questions, be prepared to show your work in an Excel worksheet. Provide clarifying comments when necessary. Part I: Empirical Market Returns The Excel workbook titled Market_Returns.xlsx' contains historical monthly returns on the aggregate stock market (Mkt Return) and the monthly return on very short term US treasuries (Risk free return) going back to January 1927. Use this data answer the following questions: 1) Compute historical average arithmetic and geometric returns, and std deviations for the stock market and short-term treasuries. What does the distribution of monthly returns for the stock market look like? How does it compare to a normal distribution? You can use the FREQUENCY function in Excel to compute a histogram. You can use NORMDIST and NORMINV functions for the normal distribution. 2) What is the 5% Value at Risk for the stock market using historical returns? What is the Expected shortfall at 5%? What is the Value at Risk at 5% assuming a normal distribution? 8. oovo AWNA Date year 31/01/27 28/02/27 31/03/27 30/04/27 31/05/27 30/06/27 30/07/27 31/08/27 30/09/27 31/10/27 30/11/27 31/12/27 31/01/28 29/02/28 31/03/28 30/04/28 31/05/28 30/06/28 31/07/28 31/08/28 29/09/28 31/10/28 30/11/28 31/12/28 31/01/29 28/02/29 28/03/29 30/04/29 31/05/29 29/06/29 month 1927 1927 1927 1927 1927 1927 1927 1927 1927 1927 1927 1927 1928 1928 1928 1928 1928 1928 1928 1928 1928 1928 1928 1928 1929 1929 1929 1929 1929 1929 Market Return Risk free Return 1 0,0019 0,0025 2 0,0444 0,0026 0,0043 0,003 4 0,0071 0,0025 5 0,0574 0,003 6 -0,0208 0,0026 0,0756 0,003 0,0225 0,0028 0,0497 0,0021 10 -0,0406 0,0025 11 0,0679 0,0021 12 0,0231 0,0022 -0,0043 0,0025 2 -0,0137 0,0033 3 0,091 0,0029 0,0445 0,0022 5 0,0184 0,0032 6 -0,0454 0,0031 7 0,0094 0,0032 8 0,07 0,0032 9 0,0315 0,0027 10 0,0174 0,0041 11 0,1219 0,0038 12 0,0042 0,0006 0,05 0,0034 0,0002 0,0036 3 -0,0055 0,0034 4 0,0179 0,0036 5 -0,0595 0,0044 6 0,1022 0,0052 2 Assignment 3: For the following questions, be prepared to show your work in an Excel worksheet. Provide clarifying comments when necessary. Part I: Empirical Market Returns The Excel workbook titled Market_Returns.xlsx' contains historical monthly returns on the aggregate stock market (Mkt Return) and the monthly return on very short term US treasuries (Risk free return) going back to January 1927. Use this data answer the following questions: 1) Compute historical average arithmetic and geometric returns, and std deviations for the stock market and short-term treasuries. What does the distribution of monthly returns for the stock market look like? How does it compare to a normal distribution? You can use the FREQUENCY function in Excel to compute a histogram. You can use NORMDIST and NORMINV functions for the normal distribution. 2) What is the 5% Value at Risk for the stock market using historical returns? What is the Expected shortfall at 5%? What is the Value at Risk at 5% assuming a normal distribution? 8. oovo AWNA Date year 31/01/27 28/02/27 31/03/27 30/04/27 31/05/27 30/06/27 30/07/27 31/08/27 30/09/27 31/10/27 30/11/27 31/12/27 31/01/28 29/02/28 31/03/28 30/04/28 31/05/28 30/06/28 31/07/28 31/08/28 29/09/28 31/10/28 30/11/28 31/12/28 31/01/29 28/02/29 28/03/29 30/04/29 31/05/29 29/06/29 month 1927 1927 1927 1927 1927 1927 1927 1927 1927 1927 1927 1927 1928 1928 1928 1928 1928 1928 1928 1928 1928 1928 1928 1928 1929 1929 1929 1929 1929 1929 Market Return Risk free Return 1 0,0019 0,0025 2 0,0444 0,0026 0,0043 0,003 4 0,0071 0,0025 5 0,0574 0,003 6 -0,0208 0,0026 0,0756 0,003 0,0225 0,0028 0,0497 0,0021 10 -0,0406 0,0025 11 0,0679 0,0021 12 0,0231 0,0022 -0,0043 0,0025 2 -0,0137 0,0033 3 0,091 0,0029 0,0445 0,0022 5 0,0184 0,0032 6 -0,0454 0,0031 7 0,0094 0,0032 8 0,07 0,0032 9 0,0315 0,0027 10 0,0174 0,0041 11 0,1219 0,0038 12 0,0042 0,0006 0,05 0,0034 0,0002 0,0036 3 -0,0055 0,0034 4 0,0179 0,0036 5 -0,0595 0,0044 6 0,1022 0,0052 2

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