Delineating Efficient Portfolio - Assignment I Question PDF

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QUESTION Q1 (50 points): Using the data given in the “Investments - Delineating an Efficient Portfolio (Student Spreadsheet) “Excel spreadsheet posted on Canvas (Worksheet “PartI”) and assuming the following constraints:   

Short selling is not allowed Allocation to any of the assets (MF1-MF10) cannot be more than 20.0% Allocation to all assets sums up to 100%

Calculate the weights of each asset for the Portfolio that maximizes the Sharpe ratio. Calculate the Portfolio Expected Return. Calculate the Portfolio Variance and Standard Deviation. Q2 (50 points): You are now going to include the Risk Free asset as one of the assets you would like to include in the Portfolio. You are going to make the following assumptions and abide by the following constraints:     

The annualized return for the Risk Free asset for the period is 8% Short selling is not allowed Allocation to the Risk Free asset cannot be more than 25% Allocation to any of the other assets (MF1-MF10) cannot be more than 16.67% Allocation to all assets (including Risk Free) sums up to 100%

Create a Part II worksheet in the same Excel spreadsheet and show a graphical representation of many possible optimal portfolios by calculating the following: An optimal portfolio is defined as being the portfolio with the best possible level of return for any given level of standard deviation. Using the Excel solver, solve for the maximum portfolio return for levels of standard deviation ranging from 5% to 40% in 2.5% increments by changing the weights of each asset in the portfolio (subject to the constraints above). For each increment of standard deviation, show:  The weights of each asset in the portfolio  The portfolio return Hint#1: include the Risk Free asset as part of your variance covariance matrix (risk free variance and covariances to other assets are equal to 0). Hint#2: have a look at the spreadsheet saved under the class 2 folder in Canvas for an example of an Efficient Frontier and of a VB program using the Excel Solver. Note that the Student spreadsheet uses Population based estimators – that is ok – just be consistent in your approach. Q3 (bonus +10 points): What happens to the portfolio return past certain levels of standard deviation (higher and lower)? Why?...