Markowitz Optimization

Open the associated Excel file named QPS2-2 input.xlsx in My Course Content::Problem Set Spreadsheets. Use Excel column K observation numbers 64 through 123 (2002m01 – 2006m12) to answer the following questions:


1. What is the average return for each of the nine indexes?
2. Show the covariance matrix of returns. Briefly describe how you constructed the covariance matrix.
Consider the simple case where short sales are allowed. Use Excel Solver to find the Minimum Variance Portfolio (MVP).
3. What is the expected portfolio return for the MVP portfolio?
4. What is the portfolio standard deviation for the MVP portfolio?
5. What is the portfolio composition (i.e., what are the weights for the nine assets)?


Consider the simple case where short sales are allowed. Use Excel Solver to find the Maximum return portfolio with a standard deviation of exactly 6.5%.
6. What is the expected portfolio return for this portfolio?
7. What is the portfolio composition (i.e., what are the weights for the nine assets)?

Consider the more realistic case where short sales are NOT allowed. Use Excel Solver to find the Minimum Variance Portfolio (MVP).
8. What is the expected portfolio return for the MVP portfolio?
9. What is the portfolio standard deviation for the MVP portfolio?
10. What is the portfolio composition (i.e., what are the weights for the nine assets)?
Consider the simple case where short sales are NOT allowed. Use Excel Solver to find the Market Portfolio if the risk-free rate is 0.30%/month (3.6%/year).
11. What is the expected portfolio return for this portfolio?
12. What is the portfolio standard deviation for this portfolio?
13. What is the portfolio composition (i.e., what are the weights for the nine assets)?
14. What is the maximum Sharpe ratio?