Problem 2 Financial planner Minnie Margin has a substantial number of clients who wish to own a mutual fund portfolio that matches, as a whole, the performance of the Russell 2000 index. Her task is to determine what proportion of the portfolio should be invested in each of the five mutual funds listed below so that the portfolio most closely mimics the performance of the Russell 2000 index. Annual Returns Year 1 Year 2 Year 3 Year 4 International Stock 22.37 26.73 4.86 2.17 Large-Cap Value 15.48 19.64 11.50 -5.25 Mid-Cap Value 17.42 20.07 -4.97 -1.69 Small-Cap Growth 23.18 12.36 3.25 3.81 Short-Term Bond 9.26 8.81 6.15 4.04 Russell 2000 Index 20 22 8 2 Write out the (non-linear) program that would produce a portfolio that most closely mimics the performance of the Russell 2000 Index. Use Excel's Solver with "GRG Non-Linear" as the solution algorithm: what is the optimal solution, i.e., what percentages should be invested in each of the five funds?
Problem 2 Financial planner Minnie Margin has a substantial number of clients who wish to own a mutual fund portfolio that matches, as a whole, the performance of the Russell 2000 index. Her task is to determine what proportion of the portfolio should be invested in each of the five mutual funds listed below so that the portfolio most closely mimics the performance of the Russell 2000 index. Annual Returns Year 1 Year 2 Year 3 Year 4 International Stock 22.37 26.73 4.86 2.17 Large-Cap Value 15.48 19.64 11.50 -5.25 Mid-Cap Value 17.42 20.07 -4.97 -1.69 Small-Cap Growth 23.18 12.36 3.25 3.81 Short-Term Bond 9.26 8.81 6.15 4.04 Russell 2000 Index 20 22 8 2 Write out the (non-linear) program that would produce a portfolio that most closely mimics the performance of the Russell 2000 Index. Use Excel's Solver with "GRG Non-Linear" as the solution algorithm: what is the optimal solution, i.e., what percentages should be invested in each of the five funds?
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
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Problem 2
Financial planner Minnie Margin has a substantial number of clients who wish to own a mutual fund portfolio that matches, as a whole, the performance of the Russell 2000 index. Her task is to determine what proportion of the portfolio should be invested in each of the five mutual funds listed below so that the portfolio most closely mimics the performance of the Russell 2000 index.
|
|
Annual Returns |
|||
|
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
International Stock |
22.37 |
26.73 |
4.86 |
2.17 |
|
Large-Cap Value |
15.48 |
19.64 |
11.50 |
-5.25 |
|
Mid-Cap Value |
17.42 |
20.07 |
-4.97 |
-1.69 |
|
Small-Cap Growth |
23.18 |
12.36 |
3.25 |
3.81 |
|
Short-Term Bond |
9.26 |
8.81 |
6.15 |
4.04 |
|
Russell 2000 Index |
20 |
22 |
8 |
2 |
- Write out the (non-linear) program that would produce a portfolio that most closely mimics the performance of the Russell 2000 Index.
- Use Excel's Solver with "GRG Non-Linear" as the solution algorithm: what is the optimal solution, i.e., what percentages should be invested in each of the five funds?
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