Assume that you are trying to construct a portfolio of four assets: US stocks, UK stocks, Turkish stocks and cash. You have historical data for the returns of these four asset classes: NASDAQ Composite Index, FTSE 100 Index, BIST 100 Index and cash. We assume that the cash is invested in a money market account whose return is the 1-day federal fund rate. The times series for the "Total Return" are given for each asset between 1988 and 2020. Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 FTSE 100 1793.1 2422.7 2143.5 2493.1 2846.5 3418.42 3065.54 3689.26 4118.51 5135.54 5882.6 6930.2 6222.46 5217.35 3940.36 4476.87 4814.3 5618.76 6220.81 6456.91 4434.17 5412.88 5899.94 5572.28 5897.81 6749.09 6566.1 6242.32 7142.83 7687.77 6728.10 7542.44 6460.52 NASDAQ 381.4 454.8 373.8 586.34 676.95 776.8 751.96 1052.13 1291.03 1570.35 2192.69 4069.31 2470.52 1950.4 1335.51 2003.37 2175.44 2205.32 2415.29 2652.28 1577.03 2269.15 2652.87 2605.15 3019.51 4176.59 4736.05 5007.41 5383.12 6903.39 6635.28 8972.60 12888.28 BIST 100 3.96 15.42 35.79 44.16 38.83 188.84 284.27 393.37 921.34 2814.47 2504.76 8776.2 7977.83 11467.24 13364.17 16007.59 22560.87 38296.91 38196.52 54320.04 24331.78 46083.95 66156.19 53806.64 74298.91 74951.23 86147.32 76785.45 72519.85 115333.01 91270.48 114425.00 147672.00 MM 100 108.45 116.38 121.53 125.08 128.78 135.80 143.41 150.99 159.30 166.75 175.59 186.83 190.23 192.59 194.48 198.68 206.94 217.79 227.02 227.38 227.66 228.07 228.23 228.59 228.80 229.07 229.62 230.86 233.86 239.17 242.88 243.10 (a) Construct a portfolio consisting of these four assets using Markowitz's Mean-Variance model. Solve the model for values of r between 4% and 40% (with increments of 2%) to draw the efficient frontier. Also provide the composition of the portfolio for each r value. (b) Construct a portfolio consisting of these four assets using MAD model for varying values of r between 4% and 40% (with increments of 2%) and write down the composition of the portfolio for each r value. For each r value considered, compare the variance of the portfolio found by MAD model with the variance of the portfolio found in part (a). Assume that you are trying to construct a portfolio of four assets: US stocks, UK stocks, Turkish stocks and cash. You have historical data for the returns of these four asset classes: NASDAQ Composite Index, FTSE 100 Index, BIST 100 Index and cash. We assume that the cash is invested in a money market account whose return is the 1-day federal fund rate. The times series for the "Total Return" are given for each asset between 1988 and 2020. Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 FTSE 100 1793.1 2422.7 2143.5 2493.1 2846.5 3418.42 3065.54 3689.26 4118.51 5135.54 5882.6 6930.2 6222.46 5217.35 3940.36 4476.87 4814.3 5618.76 6220.81 6456.91 4434.17 5412.88 5899.94 5572.28 5897.81 6749.09 6566.1 6242.32 7142.83 7687.77 6728.10 7542.44 6460.52 NASDAQ 381.4 454.8 373.8 586.34 676.95 776.8 751.96 1052.13 1291.03 1570.35 2192.69 4069.31 2470.52 1950.4 1335.51 2003.37 2175.44 2205.32 2415.29 2652.28 1577.03 2269.15 2652.87 2605.15 3019.51 4176.59 4736.05 5007.41 5383.12 6903.39 6635.28 8972.60 12888.28 BIST 100 3.96 15.42 35.79 44.16 38.83 188.84 284.27 393.37 921.34 2814.47 2504.76 8776.2 7977.83 11467.24 13364.17 16007.59 22560.87 38296.91 38196.52 54320.04 24331.78 46083.95 66156.19 53806.64 74298.91 74951.23 86147.32 76785.45 72519.85 115333.01 91270.48 114425.00 147672.00 MM 100 108.45 116.38 121.53 125.08 128.78 135.80 143.41 150.99 159.30 166.75 175.59 186.83 190.23 192.59 194.48 198.68 206.94 217.79 227.02 227.38 227.66 228.07 228.23 228.59 228.80 229.07 229.62 230.86 233.86 239.17 242.88 243.10 (a) Construct a portfolio consisting of these four assets using Markowitz's Mean-Variance model. Solve the model for values of r between 4% and 40% (with increments of 2%) to draw the efficient frontier. Also provide the composition of the portfolio for each r value. (b) Construct a portfolio consisting of these four assets using MAD model for varying values of r between 4% and 40% (with increments of 2%) and write down the composition of the portfolio for each r value. For each r value considered, compare the variance of the portfolio found by MAD model with the variance of the portfolio found in part (a)