Obtain 5 year's worth of data (monthly) on 2 risky ETFs from Yahoo Finance. You...
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Obtain 5 year's worth of data (monthly) on 2 risky ETFs from Yahoo Finance. You should have 60 observations.
One has to be SPY the other can be of your choice. Either in the corporate bond sector (LQD), real estate (VNQ) or commodities (GLD). You welcome to choose others.
Calculate the average expected rate of return on these two assets. Using the adjusted close prices. Thus you should have 60 returns and taking the average will result in one expectation.
Calculate the standard deviation, covariance and correlation coefficient between the two assets.
Draw the efficient frontier with different weights in the two risky assets.
Draw in the CAL using the 6-month short term Treasury bill as the risk free rate.
Obtain the OPTIMAL risky portfolio asset mix using the formula on og.162. That results in the steepest CAL slope.
Calculate the available risk premium to variance ratio of the risky portfolio.
Decide where you want to be on the CAL given your risk aversion. That is calculate the proportion of wealth invested in the risky portfolio. This will depend on your coefficient of risk aversion
Find the breakdown of the complete portfolio.
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