5) Portfolio Optimization - Asset Allocation (20 points) Institutional Investor - Corner Portfolios Asset Class (Portfolio Weights) Corner Portfolio Number Expected Standard Return Deviation Sharpe Ratio Domestic Foreign Intermediate Equities Equities Bonds Long-Term Bonds International Bonds Real Estate 1 0,0% 2 0,0% 3 4 10,0% 8,9% 8,4% 7,9% 7,3% 6,1% 5,3% 15,0% 11,0% 9,8% 9,0% 7,8% 5,9% 5,4% 0,53 0,62 0,65 0,66 0,68 0,7 0,62 100,0% 61,9% 40,3% 32,5% 19,9% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 16,9% 37,8% 59,9% 13,9% 14,3% 21,1% 26,6% 13,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 8,7% 0,0% 0,0% 0,0% 0,0% 38,1% 45,8% 44,5% 42,1% 35,6% 27,1% 5 6 7 Using the information given above, answer the following questions: i. ii. What is the maximum weight of foreign equities in any portfolio on the efficient frontier? (5 points) What are the asset class weights in an efficient portfolio with an expected return of 6.5 percent? (10 points) Which asset class is most important in the 6.5 percent expected-return efficient portfolio? Explain. (5 points) iii. 5) Portfolio Optimization - Asset Allocation (20 points) Institutional Investor - Corner Portfolios Asset Class (Portfolio Weights) Corner Portfolio Number Expected Standard Return Deviation Sharpe Ratio Domestic Foreign Intermediate Equities Equities Bonds Long-Term Bonds International Bonds Real Estate 1 0,0% 2 0,0% 3 4 10,0% 8,9% 8,4% 7,9% 7,3% 6,1% 5,3% 15,0% 11,0% 9,8% 9,0% 7,8% 5,9% 5,4% 0,53 0,62 0,65 0,66 0,68 0,7 0,62 100,0% 61,9% 40,3% 32,5% 19,9% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 16,9% 37,8% 59,9% 13,9% 14,3% 21,1% 26,6% 13,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 8,7% 0,0% 0,0% 0,0% 0,0% 38,1% 45,8% 44,5% 42,1% 35,6% 27,1% 5 6 7 Using the information given above, answer the following questions: i. ii. What is the maximum weight of foreign equities in any portfolio on the efficient frontier? (5 points) What are the asset class weights in an efficient portfolio with an expected return of 6.5 percent? (10 points) Which asset class is most important in the 6.5 percent expected-return efficient portfolio? Explain. (5 points)