This Part Of The Project Deals With Portfolio Returnrisk Cal

This Part Of The Project Deals With Portfolio Returnrisk Calculations This part of the project deals with portfolio return/risk calculations. To complete the project, you will hand in a set of answers to the questions listed below along with any supporting calculations and graphs. This project should be neat and well organized so that I can easily find your answers to each of the questions. 1. Data: This project makes use of annual data for two risky securities: the S&P 500 Index and Gold. Annual values for each of these securities during the 29-year period are provided in a spreadsheet named GroupProject1Data.xls. The spreadsheet is available on the class web page. You will also need an estimate of the annual risk-free rate. To get this rate, you should take the most recent annual rate on U.S. Government Securities (note: select the Treasury Security you feel is most relevant for a one-year investment horizon). These rates can be found on the web. You should specify your estimate of the annual Risk-Free rate, the date used to identify this interest rate, and the U.S. Treasury category used to identify this rate. 2. Return Calculations: Calculate annual returns for each of the two securities for each of the 28 years from 1976 through 2003. Calculate the average annual return, the standard deviation of annual returns, and the correlation between the returns of the two securities during this period and fill in the table provided. Attach the spreadsheet showing all relevant calculations as Exhibit 1. 3. Capital Allocation Lines: Assume that the mean return, standard deviation, and correlation estimates provide a reasonable forecast of expected returns and risks for the coming year. Plot the two risky securities on an expected return – standard deviation graph with the risk-free security. Label all three securities and draw the Capital Allocation Line (CAL) for each risky security. Attach the graph as Exhibit 2. 4. Risky Portfolios: Calculate the expected returns and standard deviations of portfolios combining the two risky securities with weights varying from 0% to 100% in 5% increments (resulting in 21 portfolios). Attach the relevant calculations as Exhibit 3. 5. Opportunity Set and the Optimal Risky Portfolio: Plot all 21 portfolios and the risk-free security on the expected return – standard deviation graph. Label the S&P 500, Gold, and the risk-free security. Identify and label the Minimum Variance Portfolio and the Optimal Risky Portfolio, and draw the CAL for the optimal portfolio. Attach the graph as Exhibit 4. Determine the portfolio weights in the Optimal Risky Portfolio, the standard deviation of the Minimum Variance Portfolio, and answer related questions.