90.2K

Verified Solution

Link Copied!

pls help

Susan is an intern in the portfolio management division of a buy-side firm. She is assigned to work on a project where your firm is asked to design a tailor-made optimal portfolio for a client who for undisclosed reasons can only trade three stocks: GE, IBM and Apple. The included Excel file contains monthly continuously compounded return data on the above four stocks over the period January 1989 to December 2018. For this exercise, using matrix algebra can simplify the running of solver in Excel but is not required. Question: Assume now that Susan's client can trade the risk-free asset (T-bills) in addition to the three stocks. Compute the tangency portfolio assuming the risk-free rate is 0.003 (i.e., rp = 0.3%) per month. That is, solve maxw,,w,,w (E[ro] rp/op S.t. W1 + 2 + W3 = 1 where w denotes the portfolio weights in the tangency portfolio. Are there any negative weights in the tangency portfolio? If so, interpret them. Compute and report the expected return, and standard deviation of the tangency portfolio. Susan is an intern in the portfolio management division of a buy-side firm. She is assigned to work on a project where your firm is asked to design a tailor-made optimal portfolio for a client who for undisclosed reasons can only trade three stocks: GE, IBM and Apple. The included Excel file contains monthly continuously compounded return data on the above four stocks over the period January 1989 to December 2018. For this exercise, using matrix algebra can simplify the running of solver in Excel but is not required. Question: Assume now that Susan's client can trade the risk-free asset (T-bills) in addition to the three stocks. Compute the tangency portfolio assuming the risk-free rate is 0.003 (i.e., rp = 0.3%) per month. That is, solve maxw,,w,,w (E[ro] rp/op S.t. W1 + 2 + W3 = 1 where w denotes the portfolio weights in the tangency portfolio. Are there any negative weights in the tangency portfolio? If so, interpret them. Compute and report the expected return, and standard deviation of the tangency portfolio

Answer & Explanation Solved by verified expert

See Answer