The macmillen company has equal amounts of low-risk, average-risk, and high-risk projects. the firm’s overall wacc is 12%. the cfo believes that this is the correct wacc for the company’s average-risk projects, but that a lower rate should be used for lower-risk projects and a higher rate for higher-risk projects. the ceo disagrees, on the grounds that even though projects have different risks, the wacc used to evaluate each project should be the same because the company obtains capital for all projects from the same sources. if the ceo’s position is accepted, what is likely to happen over time? 1. the company will take on too many high-risk projects and reject too many low-risk projects.2. the company will take on too many low-risk projects and reject too many high-risk projects.3. things will generally even out over time, and, therefore, the firm's risk should remain constant over time.4. the company's overall wacc should decrease over time because its stock price should be increasing.5. the ceo's recommendation would maximize the firm's intrinsic value.

Monthly price data for mdltx and ekwax from yahoo finance is contained in the excel spreadsheet for this exercise. there are 37 months of price data for the period from september 2009 to september 2012. (note: these prices already incorporate dividend payments.) the 36 monthly returns for each fund are also provided. calculate average (arithmetic) monthly return and standard deviation for each fund. you can use the excel functions average, stdev to derive these stats. annualize these statistics. use the correl function in excel to derive the correlation coefficient between the two sets of returns. (annual correlation is the same as monthly correlation. hence, no need to annualize this stat.) using the annualized statistics derived in step 1, compute the expected return and standard deviation for portfolios containing from 0% to 100% mdltx (and 100% to 0% ekwax) by 10% increments. graph the resulting portfolios. based on your analysis, is there any potential benefit to diversification across these two funds? explain. of the 11 portfolios you graphed, which are efficient?