Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

X of 2 C Get Homework Help With Chege x WhatsApp E FIN 405 - Project 2.pdf X + + File C/Users/MHKcomputer/Downloads/FIN%20405%20-%20Project%202.pdf 1. - +

image text in transcribed

X of 2 C Get Homework Help With Chege x WhatsApp E FIN 405 - Project 2.pdf X + + File C/Users/MHKcomputer/Downloads/FIN%20405%20-%20Project%202.pdf 1. - + | A Read aloud Draw 1. The purpose of this portion of the project is to calculate the benefits to diversification across broad asset classes. Assume the expected returns, standard deviations, and correlations for well-diversified portfolios of US stocks, US bonds, US real estate and international stocks are given as follows: Highlight Erase 8 E US Stocks US Bonds US Commercial Real Estate International Stocks Expected Annual Return 9.5% 3.5% 7% 9% Annual Standard Deviation 20% 12% 13% 19% US Bonds US Real Estate Annual Correlations US Bonds US Real Estate International Stocks US Stocks 35% 50% 55% 60% 25% 40% a. Derive the efficient frontier using US equities and bonds. b. Derive the efficient frontier using US bonds, US equities, real estate, and international stocks. (Use solver. In setting the objective function and the constraints, do not permit short-sales, and recall that the goal is to choose the portfolio weights that minimize the level of portfolio risk, given some level of expected return. Start with the level of portfolio expected return equal to that of 9.5%, and then lower this constraint in .5% increments to 3.5%. % . c. Superimpose this efficient frontier on the efficient frontier graph from (a). d. Comparing the efficient frontiers from(a) and (b) for an expected return off, what is the estimated reduction in portfolio risk from international, and real estate diversification? c. What are the portfolio weights for the 4-fund portfolio with an expected retum of 8%? f. Determine the optimal risky portfolio if the risk free rate is 0.5%? (The optimal risky portfolio has the highest Sharpe Ratio). Activate Windows Gulu Settings to activate Windows, O Type here to search WE ENG (348 PM 12/1/2020 X of 2 C Get Homework Help With Chege x WhatsApp E FIN 405 - Project 2.pdf X + + File C/Users/MHKcomputer/Downloads/FIN%20405%20-%20Project%202.pdf 1. - + | A Read aloud Draw 1. The purpose of this portion of the project is to calculate the benefits to diversification across broad asset classes. Assume the expected returns, standard deviations, and correlations for well-diversified portfolios of US stocks, US bonds, US real estate and international stocks are given as follows: Highlight Erase 8 E US Stocks US Bonds US Commercial Real Estate International Stocks Expected Annual Return 9.5% 3.5% 7% 9% Annual Standard Deviation 20% 12% 13% 19% US Bonds US Real Estate Annual Correlations US Bonds US Real Estate International Stocks US Stocks 35% 50% 55% 60% 25% 40% a. Derive the efficient frontier using US equities and bonds. b. Derive the efficient frontier using US bonds, US equities, real estate, and international stocks. (Use solver. In setting the objective function and the constraints, do not permit short-sales, and recall that the goal is to choose the portfolio weights that minimize the level of portfolio risk, given some level of expected return. Start with the level of portfolio expected return equal to that of 9.5%, and then lower this constraint in .5% increments to 3.5%. % . c. Superimpose this efficient frontier on the efficient frontier graph from (a). d. Comparing the efficient frontiers from(a) and (b) for an expected return off, what is the estimated reduction in portfolio risk from international, and real estate diversification? c. What are the portfolio weights for the 4-fund portfolio with an expected retum of 8%? f. Determine the optimal risky portfolio if the risk free rate is 0.5%? (The optimal risky portfolio has the highest Sharpe Ratio). Activate Windows Gulu Settings to activate Windows, O Type here to search WE ENG (348 PM 12/1/2020

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management In The Public Sector Tools Applications And Cases

Authors: Xiaohu Wang

2nd Edition

0765625229, 9780765625229

More Books

Students also viewed these Finance questions