Question 3 (Case Study)

Consider a hospital that wishes to target a standard deviation of 9%. The current yield of the STP is 3.2%. The expected return of the baseline LTP are 11.65% and its standard deviation is 12.02%.

1. Suppose Partners decides to add commodities to its baseline LTP. Use exhibit 7 to find the optimal LTP. What is the Sharpe ration of your optimal LTP? Please report at least four decimal places.
2. Consider the same hospital wishing to target a standard deviation of 9%. How much would the hospital invest in the STP and the optimal LTP? The expected return and the standard deviation of the optimal MTP can be found from exhibit 7.
3. How much is the expected return of the hospitals overall portfolio improved?

USE EXHIBIT 7

Exhibit 7 Array of Optimal Portfolios with Four Asset Classes: U.S., Foreign, Bonds, and Commodities