HW4_sol - Purdue University Krannert School of Management...

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Purdue University Krannert School of Management MGMT 411: INVESTMENTS Assignment #4 Solutions 1. Read the article “Timberland as a Portfolio Diversifier” posted on Mays Portal. a) What are some potential dangers of holding JUST timberland investments in your portfolio? Not liquid enough b) Download the spreadsheet “Portfolio Optimization (5 Assets)” from Blackboard (this is the Excel file that we have already discussed in class). Assume that you want to invest in 5 risky asset classes: Timberland, Commercial Real Estate, Small Cap Equities, International Equities, and Long-Term Corporate Bonds. With the help of the spreadsheet “Portfolio Optimization”, plot the efficient frontier for these asset classes. To do so, use the returns, standard deviations, and correlations for the period 1993-2002 provided in the article. Use the return on US Treasury bills for the same period as the risk-free rate. What is the tangency portfolio consisting of the 5 asset classes, i.e., report its composition.
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HW4_sol - Purdue University Krannert School of Management...

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