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Question #2:MarkowitzOptimization:Open the associated Excel file named QPS2 Data Winter I 2017 Problem 2 in My Course Content: Problem Set Spreadsheets. The data file includes
- Question #2:MarkowitzOptimization:Open the associated Excel file named QPS2 Data Winter I 2017 Problem 2 in My Course Content: Problem Set Spreadsheets. The data file includes 60 months of returns for 11 exchange traded funds; their names and ticker symbols follow:
Ticker
Name of Exchange Traded Fund
1
SPY
SPDR S&P 500 ETF
2
MDY
SPDR S&PMidCap400 ETF
3
IWM
iSharesRussell 2000 ETF
4
QQQ
Power Shares QQQ ETF
5
EFA
iSharesMSCI EAFE ETF
6
VWO
Vanguard FTSE Emerging Markets Stock Index ETF
7
VNQ
Vanguard REIT Index ETF
8
BND
Vanguard Total Bond Market ETF
9
PFF
iSharesUS Preferred Stock ETF
10
GLD
SPDR Gold Shares ETF
11
JNK
SPDRBarclaysHigh Yield Bond ETF
All students will do problem 2 using 9 of the aboveETFs; all students will include the first 8ETFslisted above: SPY, MDY, IWM, QQQ, EFA, VWO, VNQ, and BND. All students will include one of the last 3ETFs: PFF, GLD, and JNK as instructed on your version.Version A: IncludePFFand exclude GLD and JNK.Use the data on your9ETFsto answer the following questions:1.What is the average return for each of the nine indexes?2.Show the covariance matrix of returns. Briefly describe how you constructed the covariance matrix.Consider the simple case where short sales are allowed, but short positions must be greater than or equal to 60% and long positions must be less than or equal to 60%. Use Excel Solver to find the Minimum Variance Portfolio (MVP).3.What is the expected portfolio return for the MVP portfolio?4.What is the portfolio standard deviation for the MVP portfolio?5.What is the portfolio composition (i.e., what are the weights for the nineETFs)?Consider the simple case where short sales are allowed, but short positions must be greater than or equal to 40% and long positions must be less than or equal to 40%. Use Excel Solver to find the Maximum return portfolio with a standard deviation of exactly 3.50%.6.What is the expected portfolio return for this portfolio?7.What is the portfolio composition (i.e., what are the weights for the nineETFs)?Consider the more realistic case where short sales are NOT allowed and no more than 35% of the portfolio and no less than 6% is invested in any ETF. Use Excel Solver to find the Minimum Variance Portfolio (MVP).8.What is the expected portfolio return for the MVP portfolio?9.What is the portfolio standard deviation for the MVP portfolio?10.What is the portfolio composition (i.e., what are the weights for the nineETFs)?Consider the simple case where short sales are NOT allowed and no more than 20% and no less than 2% of the portfolio is invested in any ETF. Use Excel Solver to find the Market Portfolio if the risk-free rate is 0.20%/month (2.40%/year). 11. What is the expected portfolio return for this portfolio? 12. What is the portfolio standard deviation for this portfolio? 13. What is the portfolio composition (i.e., what are the weights for the nineETFs)? 14. What is the maximum Sharpe ratio?
Ticker | Name of Exchange Traded Fund | |||||
1 | SPY | SPDR S&P 500 ETF | ||||
2 | MDY | SPDR S&PMidCap400 ETF | ||||
3 | IWM | iSharesRussell 2000 ETF | ||||
4 | QQQ | Power Shares QQQ ETF | ||||
5 | EFA | iSharesMSCI EAFE ETF | ||||
6 | VWO | Vanguard FTSE Emerging Markets Stock Index ETF | ||||
7 | VNQ | Vanguard REIT Index ETF | ||||
8 | BND | Vanguard Total Bond Market ETF | ||||
9 | PFF | iSharesUS Preferred Stock ETF | ||||
10 | GLD | SPDR Gold Shares ETF | ||||
11 | JNK | SPDRBarclaysHigh Yield Bond ETF |
|
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