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HW4 - Purdue University Krannert School of Management MGMT...

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Purdue University Krannert School of Management MGMT 411: INVESTMENTS Assignment #4 Due September 22, in class No late assignments will be accepted. 1. Read the article “Timberland as a Portfolio Diversifier” posted on Katalyst. a) What are some potential dangers of holding JUST timberland investments in your portfolio? b) Download the spreadsheet “Portfolio Optimization (5 Assets)” from Katalyst (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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