Question
How to compute a tangency portfolio and optimal capital allocation with 3 stocks given their monthly returns over 5 years? These are my homework questions
How to compute a tangency portfolio and optimal capital allocation with 3 stocks given their monthly returns over 5 years?
These are my homework questions for more info:
1.Optimal capital allocation with the addition of the EEM fund (10 points):Compute tangency portfolio and optimal capital allocation with all three assets. Show the new complete portfolio (combination of risk-free asset and new tangency portfolio) on the new capital allocation line. No need to compute the new efficient frontier with 3 assets (unless you have time to spare to build a macro in excel and want to impress your professor).Has investor utility improved?
Answer:
Weight in SPY:
Weight in EMM:
Weight in LQD:
Weight in optimal risky portfolio SPY/EEM/LQD:
Weight in the risk-free security:
Attained utility:
2.Optimal capital allocation with short-selling constraints (10 points):How does your answer to question 5 change if negative weights are not allowed?
Weight in SPY
Weight in EMM
Weight in LQD
Weight in optimal risky portfolio SPY/EEM/LQD
Weight in the risk-free security
Attained utility
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started