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PortfolioExam - variance covariance matrix for the set of...

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EXAM 1 FINANCIAL MODELLING (FINC 774) DUE Wednesday, April 18, Before Class The exam requires you to calculate and display the portfolio frontier for a set of 15 large- cap stocks and determine whether or not the S&P500 portfolio is efficient with respect to this set. Clearly label your calculations, results, graphs, etc and email me your solutions before class on the 18th. Here’s what you need to do specifically: 1. Download the spreadsheet ExamMV.xls from http://elvis.sob.tulane.edu . This spreadsheet contains 4 years of monthly closing prices for 15 large cap stocks and the S&P 500 index. All prices are dividend and split adjusted. Using this data, calculate monthly returns for the 15 stocks and the S&P index. Compute and identify the vector of expected (mean) returns for the 15 stocks. 2. Without using the VBA function VarCovar() I gave you in class, calculate the
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Unformatted text preview: variance covariance matrix for the set of 15 stock returns. Do not include the S&P index in this exercise. Label clearly. 3. Find two frontier portfolios for the set of 15 stocks using any of the three methods we discussed in class. 4. Graph the set of frontier portfolios. Identify and label the minimum variance portfolio. 5. Is the S&P 500 portfolio efficient with respect to these 15 stocks? Explain. 6. Assume a risk free rate of 4% per annum (.3333% per month), and find the weights for the “market” portfolio. Compute the mean and variance of the market portfolio. Is anything odd about this “market” portfolio? 7. Suppose now that short selling is not allowed. Calculate the weights for an efficient portfolio with a constant equal to the mean return on the market portfolio you calculated in the previous problem. Compute the mean and variance of this portfolio....
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