Solve the problems using R console and according to the following supposition.
Suppose that an investor in the United States owns, on September 25, 2008, a portfolio worth $10 million consisting of investments in four stock indices: the Dow Jones Industrial Average (DJIA) in the US, the FTSE 100 in the UK, the CAC 40 in France, and the Nikkei 225 in Japan. Because we are considering a US investor, the value of the FTSE 100, CAC 40, and Nikkei 225 must be measured in US dollars. A file with 501 days of historical data on the closing prices of the four indices, together with exchange rates and the adjusted prices (measured in US dollars) of the indices can be downloaded from D2L. Let d0 be that file. Create a file d1 with only the adjusted prices, using d1=d0[,-c(1:10)].
1. (50 pts.) For each index find mean of daily returns, standard deviation of daily returns, and use cov() to find the covariance matrix of daily returns. If daily returns are assumed independent, find the annual volatility of each index.
2. (50 pts.) Find the weights and the standard deviation s of the efficient portfolio having mean return equal to the largest individual mean return. Report the annual volatility of the portfolio, assuming daily returns are independent.
