Complete the following steps using a shrinkage method variance-covariance matrix that is an equally weighted combination of the sample matrix in exercise 4 and a pure diagonal matrix with the six risky asset variances on the diagonal and zeros in all off-diagonal elements. After computing the new variance-covariance matrix using the shrinkage method be sure to complete parts a, b, and c.

a) Compute the global minimum variance portfolio (GMVP), and report the monthly mean expected return, monthly variance, and monthly standard deviation of the GMVP portfolio.

b) Compute the efficient portfolio, assuming a monthly risk-free rate of 0.45%, and report the monthly mean expected return, monthly variance, and monthly standard deviation of the efficient portfolio.

c) Find the frontier of expected return and standard deviation possibilities for these six risky assets using the GMVP and efficient envelope portfolios.

(Hint: Remember that we only need two frontier portfolios to compute the efficient frontier based on Proposition 2 of CAPM. Thus, by combining the GMVP and efficient portfolios, which both are on the frontier, we can find the entire frontier. First find the covariance between these two portfolios. Then, using a data table, vary the proportions held in these two portfolios while computing the expected portfolio return and standard deviation. Graph the results and you will have the frontier.

	Kroger KR	Ford F	Target TGT	Juniper Networks JNPR	Ahold AHO	KeyCorp KEY		Mean Returns
KR	0.0052	0.0033	0.0015	0.0039	0.0068	0.0010		0.24%
F	0.0033	0.0120	0.0034	0.0072	0.0063	0.0015		-0.89%
TGT	0.0015	0.0034	0.0046	0.0058	0.0039	0.0015		0.48%
JNPR	0.0039	0.0072	0.0058	0.0379	0.0073	0.0023		0.44%
AHO	0.0068	0.0063	0.0039	0.0073	0.0389	0.0023		-1.46%
KEY	0.0010	0.0015	0.0015	0.0023	0.0023	0.0018		1.04%