you are given the following information about four stocks in your portfolio: Exx
ID: 2496865 • Letter: Y
Question
you are given the following information about four stocks in your portfolio:
Exxon General Mills 3M Sears
Mean
5.56
6.94
5.93
7.07
Standard Deviation
7.48
8.95
9.02
14.46
Correlation Coefficients of Quarterly Holding Period Returns
Exxon General Sears
Mills 3M Roebuck
Exxon 1.000 -0.147 -0.060 0.002
General
Mills -0.147 1.000 0.248 0.395
3M -0.060 0.248 1.000 0.483
Sears
Roebuck 0.002 0.395 0.483 1.000
Use portfolio optimization technique to compute optimal portfolio weights if your desired return: is 7%, 8%, 9%, 10%, 11%, and 12%
Construct Efficiency Frontier on the basis of desired return and standard deviation combination.
Explanation / Answer
Efficiency Frontier
EXXON
Utility score=Expected return-0.005*standard deviation2 x risk aversion coefficient
=7-0.559504
=6.4404
MILLS
Utility score=Expected return-0.005*standard deviation2 x risk aversion coefficient
=8-1.2015
=6.7984
SEARS
Utility score=Expected return-0.005*standard deviation2 x risk aversion coefficient
=9-1.627
=7.372
ROEBUCK
Utility score=Expected return-0.005*standard deviation2 x risk aversion coefficient
=10-5.227
=4.772
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