Project 1 - M/W 1:30 April 1, 2009 Project 1 Optimization...

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M/W 1:30 April 1, 2009 Project 1 Optimization Project Portfolio Decisions: 1. The equation for my CML is as follows: r = rf + (rm-rf/sdm) sd r = 5 + (12.68-5/6.8) sd The composition of the PM is as follows: IA ALL Value IA Monthly Conv LB Hi-Yld DJ Wilshire GS Commodit With no negative weights, the weights are as follows: 18.69% 21.32% 23.80% 18.48% 10.00% 7.70%
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2. My personal optimal point lies on point (16.97, 9.74), (R, sd). I selected this point because I consider myself to be a risk tolerant investor. The risk increase was offset enough by a return increase for me to accept this point. The combination composed in this portfolio requires you borrow 50% of m at the risk free rate and invest all 150 percent into m. 3. The Sharpe Ratio are as follows: PM -(rm-rf/sdm) - (12.68-5/6.8) = 1.13 and My personal optimal point – (16.97-5/9.74) = 1.23 4. A point that has 5% percent more risk would have: Risk = 14.74 Return = 25.68 Sharpe ratio = 1.40 A point that has 5% less risk would have:
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Project 1 - M/W 1:30 April 1, 2009 Project 1 Optimization...

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