Portfolio Management
DarrenRodgers
Ex1DomesticRiskandReturnS19.docxFin 602 S19
Exercise 1
Due January 20 at 11:59PM
Instructions: You should use the Excel template to do the computations; put the graphs in the space provided. You may work on this assignment either individually or up to 4 people. If you work in a group, please make a group on Canvas (directions are on there). Put your name(s) in the space provided. Hand the assignment in by uploading via the Assignment on Canvas (if you work as a team, only 1 person needs to upload the solution for the team). The assignment is to be uploaded to Canvas by 11:59PM on January 20.
1. Choose 3 domestic indexes from the Data tab on the template. Compute the following for each index and the 3-month US TBill Index:
a. mean, wealth index, annualized return (4 each)
b. variance, standard deviation, Sharpe ratio, semi-deviation (4 each) (not for the 3-mo Bill – always assume variance of TBill = 0)
c. correlation matrix (12)
d. Graph the Growth of $1 for all four indices from 1997-2016. Label axes, legend, last point (ending wealth per $1). You must include proper labelling for full credit. (8)
2. Choose 2 of your 3 indexes. Enter the expected return, standard deviation, Sharpe, correlation, and covariance for them in the space provided. Compute the portfolio expected return, standard deviation, and reward-to-risk ratio for the listed weights on the template. (14)
a. Graph the efficient frontier of the combinations from Part 2. Label axes and datapoints. You must include proper labelling for full credit. (8)
3. For a portfolio containing your two indexes, calculate:
a. Weights, expected return, and standard deviation for the Minimum Variance Portfolio (6)
b. Weights, expected return, standard deviation, and Reward-to-Risk ratio for the Optimal Risky Portfolio (6)
c. Standard deviation for a portfolio with a target expected return equal to the expected return of the 50/50 weighted portfolio (assuming the risk-free asset is not available) (6)
d. Weights and standard deviation for a Complete Portfolio with the same target expected return as in the Part 3c 50/50 portfolio (assume the risk-free asset is available for lending and borrowing) (8)
You can either use a formula to get the weights for 3a, b, and d, or use the Excel Add-in Solver to do optimization.
