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The main objective of Part One is to construct a two-asset portfolio and determine the optimal asset allocation in order to build the Capital Allocation
The main objective of Part One is to construct a two-asset portfolio and determine the optimal asset allocation in order to build the Capital Allocation Line using the portfolio and a risk-free asset. We will use the S&P 500 stock index (the SPY exchange-traded fund that replicates the Aindex) and an index of long-term U.S. Treasury bonds (as measured by the TLT exchange-traded fund) as the two assets. We have monthly data for these two indices for the past 20 years along with the corresponding yields on Treasury bills (the risk-free rate). Using the Excel template, you will complete Part One by going through the following steps: 1) Go to the tab labeled 'SPY,' where you will see the closing monthly prices from October 2003 through October 2023. These prices are adjusted for dividends paid so you can easily calculate the monthly total returns. Starting in cell D5, calculate the monthly returns for each month (through cell D244). 2) Go to the tab labeled 'TLT,' where you will see the closing monthly prices fro
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