A second version of the Markowitz portfolio model maximizes expected return subject to a constraint that the variance of the portfolio must be less than or equal to some specified amount. Consider the Hauck Financial Service data. Click on the datafile logo to reference the data. Annual Return (%) Mutual Fund Year 1 Year 2 Year 3 Year 4 Year 5 Foreign Stock 10.06 13.12 13.47 45.42 -21.93 Intermediate-Term Bond 17.64 3.25 7.51 -1.33 7.36 Large-Cap Growth 32.41 18.71 33.28 41.46 -23.26 Large-Cap Value 32.36 20.61 12.93 7.06 -5.37 Small-Cap Growth 33.44 19.40 3.85 58.68 -9.02 Small-Cap Value 24.56 25.32 -6.70 5.43 17.31 (a) Construct this version of the Markowitz model for a maximum variance of 38. Let: FS = proportion of portfolio invested in the foreign stock mutual fund IB = proportion of portfolio invested in the intermediate-term bond fund LG = proportion of portfolio invested in the large-cap growth fund LV = proportion of portfolio invested in the large-cap value fund SG = proportion of portfolio invested in the small-cap growth fund SV = proportion of portfolio invested in the small-cap value fund = the expected return of the portfolio Rs = the return of the portfolio in years If required, round your answers to two decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank (Example: -300). If the constant is "1" it must be entered in the box. If your answer is zero enter “0”. Max s.t. 10.06 FS + 17.64 IB + 32.41 LG + 32.36 LV + 33.44 SG + 24.56 SV = R 1 13.12 FS + 3.25 IB + 18.71 LG + 20.61 LV + 19.4 SG + 25.32 SV = R 2 13.47 FS + 7.51 IB + 33.28 LG + 12.93 LV + 3.85 SG + -6.7 SV = R 3 45.42 FS + -1.33 IB + 41.46 LG + 7.06 LV + 58.68 SG + 5.43 SV = R 4 -21.93 FS + 7.36 IB + -23.26 LG + -5.37 LV + -9.02 SG + 17.31 SV = R 5 1 FS + 1 IB + 1 LG + 1 LV + 1 SG + 1 SV = 1 .20 = .20 ≤ 38 FS, IB, LG, LV, SG, SV ≥ 0 (b) Solve the model developed in part (a). If required, round your answers to two decimal places. If your answer is zero, enter “0”. FS 13.28 % IB % LG % LV 0 % SG 0 % SV % Portfolio Expected Return = %
A second version of the Markowitz portfolio model maximizes expected return subject to a constraint that the variance of the portfolio must be less than or equal to some specified amount. Consider the Hauck Financial Service data. Click on the datafile logo to reference the data. Annual Return (%) Mutual Fund Year 1 Year 2 Year 3 Year 4 Year 5 Foreign Stock 10.06 13.12 13.47 45.42 -21.93 Intermediate-Term Bond 17.64 3.25 7.51 -1.33 7.36 Large-Cap Growth 32.41 18.71 33.28 41.46 -23.26 Large-Cap Value 32.36 20.61 12.93 7.06 -5.37 Small-Cap Growth 33.44 19.40 3.85 58.68 -9.02 Small-Cap Value 24.56 25.32 -6.70 5.43 17.31 (a) Construct this version of the Markowitz model for a maximum variance of 38. Let: FS = proportion of portfolio invested in the foreign stock mutual fund IB = proportion of portfolio invested in the intermediate-term bond fund LG = proportion of portfolio invested in the large-cap growth fund LV = proportion of portfolio invested in the large-cap value fund SG = proportion of portfolio invested in the small-cap growth fund SV = proportion of portfolio invested in the small-cap value fund = the expected return of the portfolio Rs = the return of the portfolio in years If required, round your answers to two decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank (Example: -300). If the constant is "1" it must be entered in the box. If your answer is zero enter “0”. Max s.t. 10.06 FS + 17.64 IB + 32.41 LG + 32.36 LV + 33.44 SG + 24.56 SV = R 1 13.12 FS + 3.25 IB + 18.71 LG + 20.61 LV + 19.4 SG + 25.32 SV = R 2 13.47 FS + 7.51 IB + 33.28 LG + 12.93 LV + 3.85 SG + -6.7 SV = R 3 45.42 FS + -1.33 IB + 41.46 LG + 7.06 LV + 58.68 SG + 5.43 SV = R 4 -21.93 FS + 7.36 IB + -23.26 LG + -5.37 LV + -9.02 SG + 17.31 SV = R 5 1 FS + 1 IB + 1 LG + 1 LV + 1 SG + 1 SV = 1 .20 = .20 ≤ 38 FS, IB, LG, LV, SG, SV ≥ 0 (b) Solve the model developed in part (a). If required, round your answers to two decimal places. If your answer is zero, enter “0”. FS 13.28 % IB % LG % LV 0 % SG 0 % SV % Portfolio Expected Return = %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
A second version of the Markowitz portfolio model maximizes expected return subject to a constraint that the variance of the portfolio must be less than or equal to some specified amount. Consider the Hauck Financial Service data.
Click on the datafile logo to reference the data.
Annual Return (%)
Mutual Fund Year 1 Year 2 Year 3 Year 4 Year 5
Foreign Stock 10.06 13.12 13.47 45.42 -21.93
Intermediate-Term Bond 17.64 3.25 7.51 -1.33 7.36
Large-Cap Growth 32.41 18.71 33.28 41.46 -23.26
Large-Cap Value 32.36 20.61 12.93 7.06 -5.37
Small-Cap Growth 33.44 19.40 3.85 58.68 -9.02
Small-Cap Value 24.56 25.32 -6.70 5.43 17.31
(a) Construct this version of the Markowitz model for a maximum variance of 38.
Let:
FS = proportion of portfolio invested in the foreign stock mutual fund
IB = proportion of portfolio invested in the intermediate-term bond fund
LG = proportion of portfolio invested in the large-cap growth fund
LV = proportion of portfolio invested in the large-cap value fund
SG = proportion of portfolio invested in the small-cap growth fund
SV = proportion of portfolio invested in the small-cap value fund
= the expected return of the portfolio
Rs = the return of the portfolio in years
If required, round your answers to two decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank (Example: -300). If the constant is "1" it must be entered in the box. If your answer is zero enter “0”.
Max
s.t.
10.06
FS +
17.64
IB +
32.41
LG +
32.36
LV +
33.44
SG +
24.56
SV
=
R 1
13.12
FS +
3.25
IB +
18.71
LG +
20.61
LV +
19.4
SG +
25.32
SV
=
R 2
13.47
FS +
7.51
IB +
33.28
LG +
12.93
LV +
3.85
SG +
-6.7
SV
=
R 3
45.42
FS +
-1.33
IB +
41.46
LG +
7.06
LV +
58.68
SG +
5.43
SV
=
R 4
-21.93
FS +
7.36
IB +
-23.26
LG +
-5.37
LV +
-9.02
SG +
17.31
SV
=
R 5
1
FS +
1
IB +
1
LG +
1
LV +
1
SG +
1
SV
=
1
.20
=
.20
≤
38
FS, IB, LG, LV, SG, SV
≥
0
(b) Solve the model developed in part (a).
If required, round your answers to two decimal places. If your answer is zero, enter “0”.
FS
13.28
%
IB
%
LG
%
LV
0
%
SG
0
%
SV
%
Portfolio Expected Return =
%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education