Exercise

# Excess returns

In order to perform a robust analysis on your portfolio returns, you must first subtract the risk-free rate of return from your portfolio returns. The portfolio return minus the risk-free rate of return is known as the **Excess Portfolio Return**.

In the United States, the risk-free rate has been close to 0 since the financial crisis (2008), but this step is crucial for other countries with higher risk-free rates such as Venezuela or Brazil.

The `FamaFrenchData`

DataFrame is available in your workspace and contains the proper data for this exercise. The portfolio you will be working with is the equal-weighted portfolio from Chapter 2.

Instructions

**100 XP**

- Calculate excess portfolio returns by subtracting the risk free (
`'RF'`

) column from the`'Portfolio'`

column in`FamaFrenchData`

. - Review the plot of returns and excessive returns.