(2.1) Form the optimal risky portfolio using the two risky assets, US Equity and US Bonds, based on the historical information over the 33-year period. Determine the weights of the two assets and compute the Sharpe Ratio of this portfolio based on the historical information. How different your optimal risky portfolios are if you use information from the 1990-2005 and 2006-2022 respectively?

(2.2) Using the estimates from the full sample period, form the risky portfolio using US Equity and Foreign Equity. What do we learn about the benefit of international diversification based on the actual data? What do you think may explain the difference between the US and foreign equity returns?

(2.3) Many large investors moved from equity and bond based allocation to include more non-traditional assets in asset allocation starting in the 1990's. For example, from 60/40 US equity/US bonds allocation to 30/20/20/10/10/10 US EQ/US bonds/foreign EQ/Hedge fund/real estate/commodity. Compute the return, risk, and the Sharpe Ratio of the two strategies for the overall period and the two sub-periods.

(2.4) Asset allocation decisions have important implications for investment outcome. Compare an investor who chooses the safest investment for his retirement saving (investing in T-bill) with an investor who only invests in US Equity. You can compute the total holding period return (HPR) of the 8 assets over the 33-year period and show the value of a $1000 investment in each asset in 1990 at the end of 2022.

Given a data set how to compute 2.1 - 2.4?