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  3. for the period 1970-2019, the following data are a

For the period 1970-2019, the following data are available for the Canadian stock market (S-P/TSX...

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Finance

For the period 1970-2019, the following data are available for the Canadian stock market (S-P/TSX Composite Index) and the U.S. stock market (S.P. 500 index):

  • Canadian Stock Market: Average annual return 10.4%

Annual Volatility (Standard Deviation) - 16.5%

  • U.S. Stock Market: Average annual return 12.3%

Annual Volatility (Standard Deviation) - 16.8%

  • Covariance between the returns of the two stock indexes 0,0153

(a) Calculate the return and risk (standard deviation) of the minimum risk portfolio, which consists of two ETFs that model the behaviour of these stock indices (3 points)

b) Fatima borrowed $150,000 from her broker to invest a total of $500,000 on the stock markets. It has invested $300,000 in an ETF that replicates the performance of the S.P. 500 Index and $200,000 in an ETF that reflects the Canadian stock market. Determine the return and risk (standard deviation) ofyour portfolio. The interest rate charged by the broker is 5%. (3 points)

c) From the perspective of a Canadian investor, is it advantageousto invest a portion of his capital in the U.S. market? Explain your answer briefly. (2 points)

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