bus172b project 1

bus172b project 1 - Danny Fung 04-04-06 Jones Project 1:...

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Danny Fung 04-04-06 Jones Project 1: Optimization Project 1. EFFICIENT TRADE OFF LINE & EFFICIENT FRONTIER CURVE 0 0.05 0.1 0.15 0.2 0.25 0.3 0.00% 10.00% 20.00% 30.00% 40.00% STANDARD DEVIATION EXPECTED RETURN Series1 Series2 Series3 The equation for the CML is R = Rf + ((Rm-Rf)/SDm)SDp. The composition of the market portfolio is 525.14% SPX, 68.51% Sml-cap, -230.03% Value, -269.49% Growth, 2.31% EAFE, and 3.57% Emrg. 2. The point on the CML which is my optimal point is at 16.41% risk and 16.53% expected return. I chose this point because I am risk neutral and there is not too much risk yet there is a good amount of return at this point. There is no borrowing/lending of the risk free asset involved at this point. 3. The Sharpe Ratio for this point is (.1653-.05)/.1641 = .7026. 4. At 5% more risk (SDp = .2141) the expected return will be .05 + .7026(.2141) = .2004. The Sharpe Ratio at this point is (.2004-.05)/.2141 = .7025. At 5% less risk (SDp = .1141) the

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expected return will be .05 + .7026(.1141) = .1302.
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This note was uploaded on 09/08/2010 for the course BUS 172B at San Jose State University .

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bus172b project 1 - Danny Fung 04-04-06 Jones Project 1:...

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