Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 10 Oct 2017 My Price 7.00

Canadian stock markets,

SPY and XIU are ETFs tracking the S&P 500 and S&P/TSX 60 index, which are often used as proxies for the US and Canadian stock markets, respectively. From a set of their historical data, the annual expected returns and standard deviations of those two ETFs and their covariance are estimated as follows:

SPY:

E(r) = 0.36

                                                0.26

 

XIU:

E(r) = 0.44

                                   0.28

                                Covariance between= 0.0568

Suppose that you have $5 million to invest for one year and you want to invest this money into SPY, XIU and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-Bill is 6% per annum.

Suppose that you have the following utility function:

U=E(r) Ac€?o ?2   

Answer following questions using EXCEL:

 

Draw the opportunity set offered by these two securities (with an increment of 0.01 in weight).

What is the optimal portfolio of SPY and XIU?

Determine your optimal asset allocation among SPY, XIU, and T-Bill, in percentage and in dollar amounts.

 
 

Answers

Maurice Tutor
(5)
Status NEW Posted 10 Oct 2017 06:10 PM My Price 7.00

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