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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 + (rmrf/sdm) sd
r = 5 + (12.685/6.8) sd
The composition of the PM is as follows:
IA ALL Value
IA Monthly Conv
LB HiYld
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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View Full Document2.
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 (rmrf/sdm)  (12.685/6.8) = 1.13 and
My personal optimal point – (16.975/9.74) = 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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 '09
 VuorikoskiBullis,Anu

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