Various Risky Portfolio Construction
Question Description
I want you to help me with the excel and you will want to use the tutorial file “2_Asset_Portfolio” or “Using 2 risky assets to form various risky portfolios” to help you.
- You want to form 2-asset portfolio using the LARGE CAP stocks and long-term treasury bonds. Assume the long-term T-bond has expected annual return of 5.47% and standard deviation of 8%. The T-bonds also has a correlation coefficient of 0.3 with Large-cap stocks. The expected annual return and standard deviation of Large Cap stocks are 11% and 17.87%.Form 11 portfolios, using weights on the stocks of 0%, 10%, 20%, …, 90%, 100% (hint: a weight of 80% on the stocks corresponds to a weight of 20% on the bonds). For each portfolio, report the expected return and standard deviation.
- For the 11 portfolios in (1), graph the expected return vs. the standard deviation. This is easily done in Excel using the “scatterplot” graphing feature (choose returns for your Y-axis value and standard deviation as your X-axis value).
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