Asset Allocation Analysis

Asset Allocation Analysis: Risk and Return | |
| Expected | Standard | Correlation | |
| Return | Deviation | Coefficient | Covariance |
Security 1A | 10,00% | 20,00% | -0,2000 | -0,024 |Security 2B | 30,00% | 60,00% | | |
T-Bill | 5,00% | 0,00% | | |

Donde,
Cov (rA, Rb) = p(A,b)*TA* TB
= -0.2**0.20*0.60= -0.024
a) Draw the opportunity set of funds A and B
Weight| Weight | | Expected | Standard | Reward to |
Security 1 | Security 2 |   | Return | Deviation | Variability |
1,0 | 0,0 | | 0,10000 | 0,20000 | 0,25000 |
0,9 | 0,1 | | 0,12000 | 0,17799 |0,39328 |
0,8 | 0,2 | | 0,14000 | 0,17978 | 0,50062 |
0,7 | 0,3 | | 0,16000 | 0,20474 | 0,53726 |
0,6 | 0,4 | | 0,18000 | 0,24593 | 0,52861 |
0,5 | 0,5 | | 0,20000 | 0,29665 | 0,50565 |0,4 | 0,6 | | 0,22000 | 0,35282 | 0,48184 |
0,3 | 0,7 | | 0,24000 | 0,41221 | 0,46093 |
0,2 | 0,8 | | 0,26000 | 0,47362 | 0,44339 |
0,1 | 0,9 | | 0,28000 | 0,53636 | 0,42882 |
0,0 | 1,0 || 0,30000 | 0,60000 | 0,41667 |

b) Find the optimal risky portfolio P and its expected return and standard desviation.

| |
Optimal Risky Portfolio

Wa= (10-5)*(60)2-(30-5)(-0.024)=180,006
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(10-5) )*(60)2-(30-5)*(20) 2-30(-0.024)= 280,0072
= 0.6818
Wb= 1-0.6818
= 0.3182
E (rp) =(0.6818*10)+0.3182*30)= 16.36%
T p= ( ((0.6818) 2 *20 2) + ( (0.3182) 2 * (60) 2) + 2*0.6818*0.3182 (-0.024))) ½
= 0.2113%
| |
Minimum Variance Portfolio
wA= (60) 2 –(0.024)----------------------------
(60) 2 (20) 2 -2(0.024)
= 0.8571
wB= 1-0.8571
= 0.1429
T (Min) = (0.8571 2 * (20) 2 )0.1429 2 * (60) 2 ) (2*0.8571*0.1429 * (-0.024))1/2
= 17.57%c) Find the Slope of the CAL supported by T bill and portfolio P.
Note: T- bill (risk free)

S= E(rp)-rf = 16.36- 5
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T p...