Project Asset Allocation Assignment

Instructions:

• Please present your analysis in a short, self-contained, professional report (Word format), being sure to address each issue or question identified below.
• Grading will be based on the written analysis, and each member of the team will receive the same grade.
• The write-up should not exceed five double-spaced pages of text (not including figures and exhibits).
• All figures and exhibits, including analysis performed using Excel, should be carefully labeled and included in the Word document.  
• Discussions need to be clearly articulated so that the reader can follow the analysis without undue burden.
• Please e-mail the report and the excel spreadsheet by 11.59pm am on 13th February.
• An excel spreadsheet containing the case data is posted on the webpage.

General Information:

The last two decades of the prior century have exhibited many interesting patterns – the high inflation of 1980’s and the equity market bull-run of 1990’s. Begin by choosing either the 80s or 90s decade.  The Excel sheet provides historical monthly return data for an entire decade for the following indexes:

1. S&P 500                                domestic large equity
2. Russell 2000                                domestic small equity
3. LB Long Term Gvt./Corp. bonds        fixed income
4. MSCI EAFE                                foreign equity
5. T-bills                                        risk free

Required Background Reading:

BKM, Chapter 13: Section 13.5.

Questions:

1. Calculating inputs (2 points)

Using the monthly time series of data, calculate the following for each asset class:

1. Monthly and annual average return

1980

1990

1. Month and annual standard deviation of return

1990

1. Correlation between indexes of risky asset classes