2624 Assignment
FINS2624 Assignment- Portfolio Theory
Question 1
(i) Objective function is the location of the portfolio of risky assets that has the minimal standard deviation for a given level of expected return. Use the Solver to minimise the variance of the portfolio (σP2), so set TARGET CELL as the portfolio standard deviation (σP) and select EQUAL TO MIN and set the CHANGING CELL with the portfolio weights (wi).
The constraints that needs to be added: * The expected return is equal to 0.2 * Ensure that the sum of the total weights adds up to one * Since there is no short selling, the weights in individual assets cannot be negative. (ii)
Portfolio of Stocks | BHP | CBA | RIO | WBC | QBE | wi | 0.0060 | 0.1137 | 0 | 0.0313 | 0 | | | | | | | Portfolio of Stocks | TLS | WES | ANZ | NAB | QAN | wi | 0.0987 | 0.1420 | 0.0574 | 0 | 0 | | | | | | | Portfolio of Stocks | WDC | LGL | WOW | WPL | MQG | wi | 0 | 0.0215 | 0.3051 | 0.0270 | 0.0077 | | | | | | | Portfolio of Stocks | AOE | CSL | STO | BXB | FMG | wi | 0.0031 | 0.1506 | 0 | 0.0359 | 0 |
(iii)
Portfolio risk return combination | E(RP) | σP | σP2 | | 20.0000% | 14.6539% | 214.7368% |
(iv) Short selling is allowed; remove the last constraint in the solver box so the weights in individual assets can be negative.
Question 2
i. The objective function is to locate the optimal portfolio of risky assets that has the highest reward to variability ratio for a given risk free borrowing and lending rates. Use the Solver to maximise the reward to variability ratio of the portfolio, so set TARGET CELL as the reward to variability ratio and select EQUAL TO MAX and set the CHANGING CELL with the portfolio weights (wi). The constraints that needs to be added: * Ensure that the sum of the total weights adds up to one * Since there is no short selling, the weights in individual assets cannot be negative. ii. ORPL
Portfolio of Stocks |
Question 1
(i) Objective function is the location of the portfolio of risky assets that has the minimal standard deviation for a given level of expected return. Use the Solver to minimise the variance of the portfolio (σP2), so set TARGET CELL as the portfolio standard deviation (σP) and select EQUAL TO MIN and set the CHANGING CELL with the portfolio weights (wi).
The constraints that needs to be added: * The expected return is equal to 0.2 * Ensure that the sum of the total weights adds up to one * Since there is no short selling, the weights in individual assets cannot be negative. (ii)
Portfolio of Stocks | BHP | CBA | RIO | WBC | QBE | wi | 0.0060 | 0.1137 | 0 | 0.0313 | 0 | | | | | | | Portfolio of Stocks | TLS | WES | ANZ | NAB | QAN | wi | 0.0987 | 0.1420 | 0.0574 | 0 | 0 | | | | | | | Portfolio of Stocks | WDC | LGL | WOW | WPL | MQG | wi | 0 | 0.0215 | 0.3051 | 0.0270 | 0.0077 | | | | | | | Portfolio of Stocks | AOE | CSL | STO | BXB | FMG | wi | 0.0031 | 0.1506 | 0 | 0.0359 | 0 |
(iii)
Portfolio risk return combination | E(RP) | σP | σP2 | | 20.0000% | 14.6539% | 214.7368% |
(iv) Short selling is allowed; remove the last constraint in the solver box so the weights in individual assets can be negative.
Question 2
i. The objective function is to locate the optimal portfolio of risky assets that has the highest reward to variability ratio for a given risk free borrowing and lending rates. Use the Solver to maximise the reward to variability ratio of the portfolio, so set TARGET CELL as the reward to variability ratio and select EQUAL TO MAX and set the CHANGING CELL with the portfolio weights (wi). The constraints that needs to be added: * Ensure that the sum of the total weights adds up to one * Since there is no short selling, the weights in individual assets cannot be negative. ii. ORPL
Portfolio of Stocks |