This is a complete written report of your portfolio formation in a Word file. Your historical data and relevant
derived values in tables can be pasted from your previous calculations in the Excel file. Please provide
explanations of all calculations and the justifications in the Word format. Also, make sure to paste all underlying
Excel formulae that you used for calculations in the Word file.
- Provide once again the data that you presented in answering part 2 of professional assignment 2.
- Calculate the mean, variance, and the standard deviation of each security’s annual rate of return.
- Calculate the correlation coefficient between every possible pair of securities’ annual rates of return.
- Choose percentages of your initial investment that you want to allocate amongst the five (5) securities
(weights in the portfolio). Create embedded formulae which generate statistical properties of the portfolio upon
insertion of the weights. Observe the mean, the standard deviation, and the CV of the annual rate of return of
the portfolio. - Find the combination of the weights that minimizes CV of the portfolio. How the CV of the optimal portfolio
compares with the CV’s of its constituents. What is the expected rate of return and standard deviation of the
rate of return of the portfolio? - Choose different values within the range of the standard deviation of the portfolio, and for each chosen value
locate the corresponding point on the efficient frontier by finding the weights that maximize the expected rate of
return of the portfolio. Subsequently, construct the efficient frontier of your portfolio. - Assume that you initially invested $1,000,000 in the portfolio and that the distribution of the annual rate of
return of the portfolio is normal. What is the distribution of the return of the portfolio 20 years after its
formation? Provide the graph of the distribution of the return of portfolio.
