Students should read the Harvard Business School case study entitled 'Investments: Delineating an Efficient Portfolio' and answer the following questions. Students should note that the risk of the portfolio should not be more than 10% per year. Students should use the dataset in the Stock Spreadsheet for their calculations.

Key contextual elements should include risk diversification, portfolio theory, efficient frontier, Sharpe ratio, correlation analysis, risk and return.

General instructions:

o Make a two-asset portfolio and examine how risk is diversified.

o Make an efficient multiple-asset portfolio.

o Make an efficient multiple-asset portfolio and analyze the effect of adding a risk-free asset to a portfolio containing risky assets.

        

 

 

 

 

 

 

Examining Risk and Return Characteristics of a Two Asset Portfolio Profile of Individual Assets Asset Portfolio # 1 NI 2 Correltion coefficient of returns between the assets = HHLAS5E 1 10 11 Expected Return Risk 15% 30% Weights 10% 15% Asset 1 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Portfolio Standard Expected Asset 2 Deviation Return 0% 10,00% 15,00% 10% 10,50% 16,50% 20% 11,00% 18,00% 30% 11,50% 19,50% 40% 12,00% 21,00% 50% 12,50% 22,50% 60% 13,00% 24,00% 70% 13,50% 25,50% 80% 14,00% 27,00% 90% 14,50% 28,50% 100% 15,00% 30,00%