Assignment #3 Solution W10 Actsc 372
1.
(a) Here are the additional assumptions for the calculations:
TSX
RIM
RY
Rogers
MFC
Monthly Expected Return
0.29%
2.68%
1.37%
0.76%
1.26%
Variance/Covariance Matrix
TSX
RIM
RY
Rogers
MFC
TSX
0.22%
0.46%
0.10%
0.20%
0.19%
RIM
0.46%
3.95%
0.13%
0.67%
0.45%
RY
0.10%
0.13%
0.30%
0.07%
0.26%
Rogers
0.20%
0.67%
0.07%
0.85%
0.11%
MFC
0.19%
0.45%
0.26%
0.11%
0.89%
(b)
μ
σ
2
σ
TSX
RIM
RY
Rogers
MFC
Markowitz models (with short selling)
MinVar:
0.53%
0.16%
4.06%
69.04%
5.45%
35.93%
4.94%
4.45%
1.00%
0.2%
4.42%
30.86%
0.92%
62.14%
8.47%
2.39%
2.00%
0.47%
6.84%
50.21%
14.44%
117.80%
15.98%
1.99%
3.00%
1.02%
10.10%
131.28%
27.96%
173.46%
23.48%
6.37%
(c) With shortselling constraint, the expected return of 2% per month can be at
tained by exposing the portfolio to a standard deviation of 10.31%, which is
substantially higher than 6.84%, without the shortselling constraint.
The cor
responding weights for TSX, RIM, RY, Rogers, and MFC are 0.00%, 48.22%,
51.78%, 0.00%, and 0.00%. In other words, only invest in RIM and RY stocks.
(d) With shortselling constraint, it is not possible to construct a portfolio with 3%
expected return since the highest expected return is 2.68%, by investing 100% in
RIM.
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 Spring '10
 Tan,KenS
 Capital Asset Pricing Model, RIM, risk free asset, shortselling constraint

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