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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 19.4 3.85 58.68 -9.02 Small-Cap Value 24.56 25.32 -6.7 5.43 17.31 (a) Construct this version of the Markowitz model for a maximum variance of 30. 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) Min s.t FS + IB + LG + LV + SG + SV R1 FS + IB + LG + LV + SG + SV R2 FS + IB + LG + LV + SG + SV R3 FS + IB + LG + LV + SG + SV R4 FS + IB + LG + LV + SG + SV R5 FS + IB + LG + LV + SG + SV 1 30 FS, IB, LG, LV, SG, SV 0 (b) Solve the model developed in part (a). If required, round your answers to two decimal places. FS % IB 0.50 % LG % LV % SG % SV % Portfolio Expected Return = %
Yan Yan Corp. has a $10,000 par value bond outstanding with a coupon rate of 5.2 percent paid semi annually and 28 years to maturity. The yield to maturity on this bond is 4.3 percent. What is the price of the bond?
John decided to buy a vacation home in 8 years from now and wants to have saved $91,966 for a down payment. How much money should he place today in a savings account that earns 4.47 percent per year (compounded daily) to accumulate money for his down..
Suppose we have the following returns for large-company stocks and Treasury bills over a six year period. Suppose we have the following returns for large-company stocks and Treasury bills over a six year period.
Bond par value $1,000. Semi-annual coupon payments $40. Matures in 10 years. Current bond price $960. What is the payback period? What is the IRR? What is the NPV, (discount rate of 4%)? For this bond investment, compare the yield-to-maturity to the ..
You will receive $100 from a savings bond in 3 years. The nominal interest rate is 8.3%. What is the present value of the proceeds from the bond? What is the real interest rate?
Your company has decided that its capital budget during the coming year will be $20 million. Its optimal capital structure is 60 percent equity and 40 percent debt. Its earnings before interest and taxes (EBIT) are projected to be $34.667 million for..
The Starr Co. just paid a dividend of $1.90 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Investors require a return of 10 percent on the stock. What is the current price? What will..
Travel America Coaches currently sells 15,000 motor homes per year at $94,000 each, and 1,500 luxury motor coaches per year at $159,000 each. The company wants to introduce a low-range camper to fill out its product line; it hopes to sell 3,000 of th..
Which statement is NOT true concerning moral philosophies?
Morgan Contractors borrowed $1.50 million at an APR of 4.0 percent. The loan called for a compensating balance of 5 percent. What is the effective interest rate on the loan?
There are several industries with low percentages of debt financing. Take a look and identify some with a low percentage of debt financing and do the same with firms that have a high percentage of debt financing. Based on the types of firms that use ..
25 years ago, Delicious Mills, Inc. issued 30-year to maturity bonds that had a 8.98 percent annual coupon rate, paid semiannually. The bonds had a $1,000 face value. Since then, interest rates in general have changed and the yield to maturity on the..
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