By doing the optimisation using Excel Solver, you are required to construct a

mean variance efficient portfolio frontier for any 10 randomly selected ordinary

shares listed on a stock market. For all your calculations, you should use the 60

monthly returns, sample means, standard deviations, and covariance and

correlation matrices. Plot the portfolio frontier and comment on the weights of

the portfolios along the portfolio frontier including in your discussion the

correlations among the 10 shares.

2. By Identifying and combining a riskless asset with the 10 shares, plot the

portfolio frontier and select the tangent portfolio on the portfolio frontier. Provide

the rationale for your choice of the riskless asset.

3. Assume that the following indifference curve reflects the quadratic utility

function of an investor:

where ui is the utility of the investor; pr is the portfolio mean; is the risk

aversion coefficient; and p is the standard deviation of the portfolio.

Calculate the implied risk aversion coefficient of the selected tangent portfolio in

the question 2 above which maximises the investor's utility. Plot the graphs of

the CML, the indifference curve and the efficient frontier in the same chart and

discuss your results.

4. Assume that the short selling is not allowed, how your efficient frontiers would

differ from those with short selling allowed in questions 1 and 2 above.

Identify the appropriate benchmark index and critically evaluate the performance of

the tangent portfolio selected above using various risk-adjusted portfolio

performance measurement indices. Justify your choice of the benchmark index. For

calculating Jensen's alpha, in addition to the CAPM, use Fama and French three

factors model and Carhart four factors model. The UK factors will be made

available. The UK SMB, HML and momentum factors are provided. The US, Global

European Japanese Asia Pacific ex Japan and Fama/French North American

Factors are available from:

http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html

5. Comment on the limitation of your analysis and discuss briefly the gains in the

performance of