Please make sure that all your outputs/results including the graphs should be presented in a single word file. However, you also need to upload you excel file to support your calculations.

Part I. Please research and answer at least 5 of the following questions in preparation for the portfolio simulation (there are no right or wrong answers and your work will be judged on whether your answer is well reasoned or not):

1. Given where we are in the business cycle, would you be under or overweight bonds? What will be your allocation to domestic equity, domestic small cap equities, and international developed and emerging markets equities?
2. Will emerging markets stocks exhibit more correlation with the developed markets this year?
3. What projections do you have for the world economy? Will the current commodity cycle continue?
4. What is your view on the dollar? What factors could see a long position begin to rally relative to other currencies?
5. Do you have an overall investment theme?
6. What impact will expected interest rate increases have on the economy, and the broader markets?
7. What sectors would benefit from higher interest rates? Which would suffer from higher interest rates?
8. How will you identify undervalued stocks? What financial ratios will you use to screen stocks? Are you looking for growth oriented companies with superior earnings growth?
9. What is your best estimate on the future course of interest rate spreads-widening or narrowing? Would you be favouring long duration or short duration bonds right now? Do you forecast higher default rates by corporate issuers?
10. What is your sell discipline?

Part II

Choose five securities among different asset classes (domestic stocks and bonds, foreign stocks and bonds, mutual funds, commodities (futures), ETFs, etc) and perform the following:

1. Obtain 5 years monthly price data for each security;
2. Calculate average return and standard deviation of the return for each security;
3. Calculate variance-covariance and correlation matrices;
4. Calculate the return and standard deviation of the portfolios comprising:

• all of the securities with equal weights
• the highest and lowest return securities with the following weights (1;0), (0.9;0.1), (0.8;0.2), etc.
• securities with the lowest correlation coefficient using following weights (1;0), (0.9;0.1), (0.8;0.2), etc.
• securities with the highest correlation coefficient using following weights (1;0), (0.9;0.1), (0.8;0.2), etc

as well as analyze and compare risk and return of all of the above portfolios. Plot each of the above portfolios on risk-return space. Identify the portfolio which provides the best diversification benefits