172a project 1

172a project 1 - Business 172B Project 1 Frank Jones Mar 14...

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Business 172B Project 1 Frank Jones Mar. 14, 2007 1. The equation for the CML is R = Rf + (Rm-Rf ) * SDp SDm The composition of the PM is SPX 31.74%, Smi-cap 18.58%, Value -40.51%, EAFE 6.28%, LB Agg 80.64% and RE 3.26% 2. The optimal point that I probably chose would be 9.13% Risk and 12.04% expected return. Since I’m not a risky person I decided to go with a low risk with a decent expected return. By choosing a point that is close to the midpoint there is no borrowing/lending of the risk free asset involved. 3. The Sharpe Ratio for this optimal point is (.1204-.05)/.0913 = 77.11% 4. If the risks goes up about 5% higher the Sharpe ratio for that optimal point would be (.1514-.05)/.1562 = 64.92%. If the risk goes down 5% the Sharpe ratio for that point would be (.0895-.05)/.0545 = 72.48%. These two points do not influence me to reconsider the point I have chosen.
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EFFICIENT TRADE OFF LINE &EFFICIENT FRONTIER CURVE 0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 0.2 0.00% 5.00% 10.00 % 15.00
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172a project 1 - Business 172B Project 1 Frank Jones Mar 14...

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