Investment Management – Mean-Variance Optimization – Australian Securities Exchange – Finance Assessment Answer

By
Responsive Centered Red Button

Need Help with this Question or something similar to this? We got you! Just fill out the order form (follow the link below), and your paper will be assigned to an expert to help you ASAP.

Order Form

 D_AI_DEIB_BAJ
Finance Assessment Answer
Assignment Task: 
Question 1 (Mean-variance optimization – 10 marks)
The managed fund, EquityIsBest, would like to construct an investment portfolio and is considering whether they should include stocks issued by up to six companies listed on the Australian Securities Exchange (ASX).
(a) List the names of the six companies that EquityIsBest will be considering; the number of their ordinary shares that are traded on the ASX; and the ASX industry group that each company belongs to. (worth 0.5 marks)
(b) For each of the six stocks, estimate the expected monthly continuous returns and sample standard deviations of the monthly returns. In addition estimate the sample correlation between each pair of the six stocks. List your estimations in simple labelled tables. (worth 1 mark)
(c) EquityIsBest feels that their utility can be best approximated by the quadratic utility function discussed in Lecture 2. List the six stocks that would be preferred if an investor was (i) risk-QHXWUDO $ LL
H[WUHPHO ULVN DYHUVH $? LLi) has low risk aversion (A=2); or (iv) has high risk aversion (A=6). Explain why these are the preferred stocks for (i) to (iv). (worth 1 mark)
(d) Construct the portfolio of the two most highly correlated stocks that would maximise EquityIsBest’s utility (assume A = 2.75) when:
i. short-selling is not allowed.
ii. short-selling is allowed.
For i. and ii. list in a simple labelled table the portfolio’s return and risk and the weights on each of the two stocks. Explain why the stocks would be given these weights. Note: The calculations can be undertaken simply by trial and error (in a systematic way) in EXCEL or by using EXCEL’s Solver. (worth 1.5 marks)
(e) Repeat part (d) for the two stocks that have the lowest correlation.(worth 1.5 marks)
(f) EquityIsBest decides to invest in a portfolio that contains the two stocks that have the highest correlation and a risk-free interest rate security. Assume the risk-free interest rate is the average cash rate. Estimate the weights on the two stocks and risk-free interest rate security in the optimal portfolio that maximises EquityIsBest’s utility (assume A = 2.75 and short-selling is allowed). In a simple labelled table list the optimal portfolio’s return and risk and the weights for the two stocks and the risk-free interest rate security. Explain why the securities in the portfolio have these weights.
Note: Lecture 2 and Lecture 2 tutorial questions discuss how the optimal portfolio will maximise the slope of the capital asset allocation line (CAL) and how to find the best allocation between a risky asset portfolio and a risk-free asset. (worth 1.5 marks)
(g) EquityIsBest decides to compare the characteristics of the optimal portfolio in (f) with the following portfolios:
i. The optimal portfolio of the two stocks with the lowest correlation and a risk- free interest rate security.
ii. The optimal portfolio consisting of an ASX200 managed fund and a risk-free interest rate security.
In a simple labelled table list, for i. and ii. the portfolio’s return and risk and the weights on the securities in the portfolios. Explain why the securities in the portfolios have these weights. (worth 1.5 marks)
(h) Which of the portfolios in (d) to (g) would EquityIsBest consider to be the most optimal? Briefly explain why? (worth 1.5 marks)
Investment Management
Finance Assessment
This Finance Assessment Assessment has been solved by our Finance experts at TVAssignmentHelp. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK & US by helping them to score HD in their academics. Our Experts are well trained to follow all marking rubrics & referencing style.

Be it a used or new solution, the quality of the work submitted by our assignment experts remains unhampered. You may continue to expect the same or even better quality with the used and new assignment solution files respectively. There’s one thing to be noticed that you could choose one between the two and acquire an HD either way. You could choose a new assignment solution file to get yourself an exclusive, plagiarism (with free Turnitin file), expert quality assignment or order an old solution file that was considered worthy of the highest distinction.

How to create Testimonial Carousel using Bootstrap5

Clients' Reviews about Our Services