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Note: Submissions are individual. Recall that late submission will not be allowed. Homework and problem sets must be submitted at the beginning of class on the due date. Data: The data source for this homework is the spreadsheet HW1-Data-S2016.xls (available from D2L). The spreadsheet contains monthly data for five asset classes: Large Stocks, Small Stocks, Longterm U.S. Government Bonds, Intermediate-Term U.S. Government Bonds, and 30-Day U.S. Treasury Bills. Assignment: 1. (20 points) A manager picks at the beginning of each month between Large Stocks and 30Day U.S. Treasury Bills and remains invested (exclusively) into one of them for the rest of the month. Suppose that the manager is a perfect timer (that is, the choice between the two is always correct). Use the data from HW1-Data-S2016.xls to plot the evolution of the initial $1 investment in the period from January 1926 to December 2010 (as before, assume that trading is costless). Print out the resulting plot and mark on it the value of the investment at the end of 2010. 2. (20 points) A manager picks at the beginning of each month among all five asset classes and remains invested (exclusively) into one of them for the rest of the month. Suppose that the manager is a perfect rotator (that is, the choice among the five is always correct). Use the data from HW1-Data-S2016.xls to plot the evolution of the initial $1 investment in the period from January 1926 to December 2010 (as before, assume that trading is costless). Print out the resulting plot and mark on it the value of the investment at the end of 2010. Hint 1: You can express the correct choice between (among) asset classes by using the Excel function MAX. Hint 2: Use the logarithmic scale for axis y!

Question Set #349

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