Ch 7 OLC two security model

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Ch 7 OLC two security model Powered By Docstoc
					                                                                                        Section 7.4 OLC Model




        A             B                       C               D           E         F          G              H                 I         J           K            L             M        N      O
 1   Chapter 7 Two-Security Portfolio                                                                                                                                       Dr. Johnson
 2
 3
 4   Asset Allocation Analysis: Risk and Return
 5                        Expected       Standard              Corr.
 6                            Return     Deviation          Coeff s,b Covariance
 7   Security 1                 0.08          0.12                0.3    0.0072
 8   Security 2                 0.13           0.2
 9   T-Bill                     0.05             0                                                                                        Portfolio Risk and Return
10
11
12     Weight                  Weight                    Expected    Standard Reward to
13   Security 1              Security 2                  Return      Deviation Variability
14            1                       0                      0.08000    0.12000 0.25000
15          0.9                     0.1                      0.08500    0.11559 0.30281
16          0.8                     0.2                      0.09000    0.11454 0.34922




                                                                                                         Expected return
17          0.7                     0.3                      0.09500    0.11696 0.38474
18          0.6                     0.4                      0.10000    0.12264 0.40771
19          0.5                     0.5                      0.10500    0.13115 0.41937
20          0.4                     0.6                      0.11000    0.14199 0.42258
21          0.3                     0.7                      0.11500    0.15466 0.42027
22          0.2                     0.8                      0.12000    0.16876 0.41479
23          0.1                     0.9                      0.12500    0.18396 0.40771
24            0                       1                      0.13000    0.20000 0.40000
25
26   Minimum Variance Portfolio           Short Sales     No Short
27                                         Allowed         Sales
28                Weight 1                    0.82000       0.82000
                                                                                                                           0.00000
29                Weight 2                    0.18000       0.18000                                                                  0   0.05   0.1       0.15     0.2      0.25    0.3   0.35
30                Return                      0.08900       0.08900
31                Risk                        0.11447       0.11447                                                                                   Starndard Deviation

32                CAL(MV)
33
34   Optimal Risky Portfolio              Short Sales     No Short
35                                         Allowed         Sales
36                Weight 1                    0.40000       0.40000
37                Weight 2                    0.60000       0.60000
38                Ex Ret                      0.11000       0.11000
39                St Dev.                     0.14199       0.14199
40                CAL(OR)
41
42                Reward to
43                Variability                0.42258         0.42258
44
45   Optimal Portfolio with a Risk Free Asset
46                                     Short Sales        No Short
47                                       Allowed           Sales
48   Desired rate of return:                  0.12
49
50                Weight OP                   1.16667        1.16667
51                Weight RF                  -0.16667       -0.16667
52                Ex Ret                      0.12000        0.12000
53                St Dev                      0.16565        0.16565
54
55   Optimal Portfolio w/o a Risk Free Asset
56
57   Desired rate of return:                      0.12
58
59                Weight 1                   0.20000
60                Weight 2                   0.80000
61                Ex. Return                 0.12000
62                St Dev                     0.16876
63
                                                                               Solution to OLC Ques 1-4




        A         B           C                 D           E         F            G              H                  I         J           K            L             M        N      O
 1   Chapter 7 Two-Security Portfolio                                                                                                                            Dr. Johnson
 2
 3
 4   Asset Allocation Analysis: Risk and Return
 5              Expected         Standard       Corr.
 6                  Return       Deviation   Coeff 1,2 Covariance
 7   Security 1       0.09            0.18         0.3   0.01512
 8   Security 2       0.17            0.28
 9   T-Bill          0.035               0                                                                                     Portfolio Risk and Return
10
11
12     Weight     Weight                    Expected Standard Reward to
13   Security 1 Security 2                  Return     Deviation Variability
14            1          0                     0.09000   0.18000 0.30556
15          0.9        0.1                     0.09800   0.17248 0.36526
16          0.8        0.2                     0.10600   0.16944 0.41902




                                                                                              Expected return
17          0.7        0.3                     0.11400   0.17112 0.46166
18          0.6        0.4                     0.12200   0.17739 0.49046
19          0.5        0.5                     0.13000   0.18778 0.50592
20          0.4        0.6                     0.13800   0.20166 0.51077
21          0.3        0.7                     0.14600   0.21836 0.50833
22          0.2        0.8                     0.15400   0.23730 0.50148
23          0.1        0.9                     0.16200   0.25797 0.49230
24            0          1                     0.17000   0.28000 0.48214
25
26                         Short
     Minimum Variance Portfolio Sales No Short
27                           Allowed    Sales
28            Weight 1          0.78550 0.78550
                                                                                                                0.00000
29            Weight 2          0.21450 0.21450                                                                           0   0.05   0.1       0.15     0.2      0.25    0.3   0.35
30            Return            0.10716 0.10716
31            Risk              0.16939 0.16939                                                                                            Starndard Deviation

32            CAL(MV)
33
34   Optimal Risky Portfolio Short Sales No Short
35                            Allowed     Sales
36              Weight 1         0.39063   0.39063
37              Weight 2         0.60937   0.60937
38              Ex Ret           0.13875   0.13875
39              St Dev.          0.20311   0.20311
40              CAL(OR)
41
42              Reward to
43              Variability      0.51080       0.51080
44
45   Optimal Portfolio with a Risk Free Asset
46                            Short Sales No Short
47                              Allowed       Sales
48   Desired rate of return:          0.12
49
50              Weight OP        0.81928       0.81928
51              Weight RF        0.18072       0.18072
52              Ex Ret           0.12000       0.12000
53              St Dev           0.16641       0.16641
54
55   Optimal Portfolio w/o a Risk Free Asset
56
57   Desired rate of return:         0.12
58
59              Weight 1         0.62500
60              Weight 2         0.37500
61              Ex. Return       0.12000
62              St Dev           0.17541
63

				
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