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1. Analyze the expected return from your investment after taking into account your family's financial needs in the next five years. 2. Conduct a Markowitz
1. Analyze the expected return from your investment after taking into account your family's financial needs in the next five years. 2. Conduct a Markowitz portfolio analysis on the 10 ETFs recommended by your broker, using annual historical returns and risks to determine the optimal portfolio allocation. Discuss the diversification benefit by comparing the performance of investing in individual ETFs and the efficient frontier. (Hint: The one-year risk-free rate was 0.87 per cent in December 2016 using the one-year Treasury bill rate shown in case Exhibit 2, panel B). 3. Conduct a Markowitz portfolio analysis on the 10 ETFs recommended by your broker, using annualized three-year historical returns and risks to determine the new efficient frontier. Discuss the long-term investing benefits by comparing this efficient frontier with the efficient frontier determined in question 2. 4. Based on the market risk premium forecasted by J. P. Morgan in case Exhibit 3, panel B, determine whether a tactical asset allocation would enable you to earn a higher return in the following year. You might need to adjust the allocation made in question 2. 5. Analyze the quantitative and qualitative advantages and disadvantages of adding two alternative investment vehicles to the optimal portfolio. The two alternative asset classes include gold and real estate investment trusts that are traded in the U.S. market and denominated in U.S. dollars. The historical annual index levels of the two ETFs are available in case Exhibit 4. 6. Make a final optimal investment decision after taking into account the above analyses. 7. Discuss the weaknesses and vulnerabilities of applying the Markowitz Portfolio Theory in practice
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