Finance 320

1. How did the Riverdale portfolio perform over the 1990-2011 period? Report the portfolio mean, standard deviation, and Sharpe ratio.

Riverdale Portfolio Mean:  0.772% (monthly)
Riverdale Portfolio Variance:  0.00094 (monthly)

Riverdale Portfolio Standard Deviation:  0.0307 (monthly)

Sharpe Ratio:  0.159

Thus, the APR Riverdale Portfolio Annual Return is 9.264% and the APR Riverdale Portfolio Annual Standard Deviation is 0.1063 and the Sharpe Ratio is 0.159.

1. Plot the portfolio frontier given the five risky assets the college is investing in (you may use the solver module in Excel for this purpose).

1. Weights:

• Small Stock:  4.982%
• Medium Stock:  -1.925%
• Large Stock:  10.715%
• Corporate Bond:  67.260%
• Government Bond:  18.969%

1. Target Expected Return

• 0.632%

1. Variance

• 0.00036

1. Standard Deviation

• 0.0189

1. Expected Return 0.632%

[pic 1]

1. Is the portfolio of risky assets (consisting of investments in three stock portfolios and two bond portfolios) currently chosen by the college's fund manager an efficient portfolio? If not, calculate the investment proportions (in the five assets) required to construct an efficient risky portfolio, which would deliver the same expected return as the current choice of risky portfolio.

Current Portfolio Weights

1. Small Stock:  22.2%
2. Medium Stock:  22.2%
3. Large Stock:  22.2%
4. Corporate Bond:  16.7%
5. Government Bond:  16.7%

Efficient Portfolio Weights

1. Small Stock:  18.817%
2. Medium Stock:  21.884%
3. Large Stock:  -7.285%
4. Corporate Bond:  -7.578%
5. Government Bond:  74.162%

[pic 2]

Thus, from the result we can find the current portfolio is not the most efficient one. The efficient portfolio may get the same expected return but lower the risk.