Distinguish between an endowment and a foundation

Assignment Help Portfolio Management

Reference no: EM132263644

Exercise 1

Consider the same situation with 4 assets and the following expected rates of return and variance-covariance matrix:

1) Find the weights of a portfolio that achieves an expected rate of return of 17% with the lowest possible variance (or standard deviation).
2) Show that using the weights obtained you do indeed have a portfolio expected return of 17% (i.e., verify the result you just obtained)
3) Compute the resulting portfolio standard deviation. How does this optimal portfolio compare against asset # 2 ?

Exercise 2

Consider again the same situation with 4 assets and the following expected rates of return and variance-covariance matrix:

Compute and plot the mean-variance efficient frontier by using the equation from the notes (plot E(Rp) against the standard deviation)
Note: Plot an expected return range of 0% to 30%, with 1% increments (no need to go higher than 30%)

Exercise 3

Consider again the same situation with 4 assets and the following expected rates of return and variance-covariance matrix:

Randomly select two efficient portfolios (for consistency, let us all choose E(Rp1)=14% and E(Rp2)=10%) and construct
+ plot various linear combinations of these two portfolios. Verify that the same frontier as in Exercise 3 is obtained, using the same range of values.
Hint: to do this, you also need to compute the covariance between the two efficient portfolios.

Exercise 4

From 2001 CFA Level II Exam

Abigail Grace has a $900,000 fully diversified portfolio. She subsequently inherits ABC Company common stock worth $100,000. Her financial advisor provided her with the forecasted information given in the table below. The expected correlation coeffecient of ABC stock returns with the original portfolio returns is 0.40. The inheritance changes her overall portfolio and she is deciding whether or not to keep the ABC stock.

Exercise 5

Assuming Grace keeps the ABC stock

A. Calculate the:
i expected return of her new portfolio that includes the ABC stock
ii expected covariance of ABC stock returns with the original portfolio returns; and
iii expected standard deviation of her new portfolio that includes the ABC stock.

If Grace sells ABC stock, she will invest the proceeds in the risk-free government securities yielding 0.42 percent monthly. Assuming Grace sells the ABC stock and replaces it with the government securities

B. Calculate the:
i expected return of her new portfolio that includes the government securities;
ii expected covariance of the government security returns with the original portfolio returns; and
iii expected standard deviation of her new portfolio that includes the government securities.

Exercise 6

Read Chapter 4 and then answer these questions:
1. Distinguish between an endowment and a foundation
2. Distinguish between defined benefit and defined contribution pensioon plans
3. Do Problem question 6 on Page 110
4. Explain the notion of myopic loss aversion

Attachment:- Homework.rar

Reference no: EM132263644

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