The ABCD Foundation has retained the consulting firm CNU Investors to recommend an equity portfolio from a set of domestic equities (GE, MSFT, AAL, BUD, AES, PG, DIS, and BAC). The current portfolio has a market value of $85 million, and it is equally invested in (GE, MSFT, AAL, BUD, AES, PG, DIS, and BAC). 1. Estimate the optimal allocation (in % and $) and compare the expected performance (expected returns, standard deviation, Sharpe ratio) of the optimal portfolio with the minimum variance portfolio, the current portfolio, and the market portfolio. (Use the historical returns and variance/covariance data) 2. Repeat 1. Using the CAPM model. 3. Still using the CAPM model and the following new information: the expected return of GE is 2.85%; the beta of GE should be estimated using only the last 24 months. Estimate the new optimal allocation (in % and $) (Hint: Check Scholar and the Excel Model: Portfolio_Opt_CAPM_3FB3.xlsx)
FINC424 – Portfolio Management – Fall 2020 Assignment 2 (10 points) Due Date: September 21, 2020 Coverage: Chapter 6 Late submission of the assignment will not be accepted. Remember: Assignments can be completed in groups of up to 5 students. The discussion within groups is encouraged and among groups is forbidden. Assignments are designed to help the preparation for exams. Write your name! and good luck! Problem 1 What would be the optimal asset allocation strategy using these five asset classes? (Hint: You only need to check the results and add the optimal portfolio that provides an expected return of 10%) Problem 2 The ABCD Foundation has retained the consulting firm CNU Investors to recommend an equity portfolio from a set of domestic equities (GE, MSFT, AAL, BUD, AES, PG, DIS, and BAC). The current portfolio has a market value of $85 million, and it is equally invested in (GE, MSFT, AAL, BUD, AES, PG, DIS, and BAC). 1. Estimate the optimal allocation (in % and $) and compare the expected performance (expected returns, standard deviation, Sharpe ratio) of the optimal portfolio with the minimum variance portfolio, the current portfolio, and the market portfolio. (Use the historical returns and variance/covariance data) 2. Repeat 1. Using the CAPM model. 3. Still using the CAPM model and the following new information: the expected return of GE is 2.85%; the beta of GE should be estimated using only the last 24 months. Estimate the new optimal allocation (in % and $) (Hint: Check Scholar and the Excel Model: Portfolio_Opt_CAPM_3FB3.xlsx)