Question
In this file, the expected monthly return for each stock is calculated using excel function AVERAGE (), for each stock, the variance of monthly returns
In this file, the expected monthly return for each stock is calculated using excel function AVERAGE (), for each stock, the variance of monthly returns is calculated using Excel function VAR (), and the covariance between the returns of each pair of stocks is calculated using Excel function COVAR (). Assume that the yearly risk free rate is 2% (A monthly risk free rate of 0.001652).
(d) What would be the capital allocation between the risk free asset and the optimal risky investment portfolio for an individual with risk aversion coefficient of 3? If the initial investment is $100,000, how much money should the investor allocate to each of the 5 assets (risk free asset and 4 risky assets).
| Expected Monthly Return | ||
| Expected Monthly Return | ||
| PG | 0.010848 | |
| Microsoft | 0.014854 | |
| BAC | 0.011589 | |
| Exxon | 0.012043 | |
| Variance | ||
| Variance | ||
| PG | 0.004478 | |
| Microsoft | 0.012820 | |
| BAC | 0.005611 | |
| Exxon | 0.002820 | |
| Covariance | ||
| Cov(PG, Microsoft) | -0.000649 | |
| Cov(PG, BAC) | 0.000683 | |
| Cov(PG, Exxon) | 0.000433 | |
| Cov(Microsoft, BAC) | 0.001681 | |
| Cov(Microsoft, Exxon) | 0.000804 | |
| Cov(BAC, Exxon) | 0.000757 | |
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Chronic Regulatory Focus And Financial Decision Making Asset And Portfolio Allocation
Authors: Navin Kumar
1st Edition
9812876936, 978-9812876935
