In: Math
Reconsider the portfolio selection example, including its
spreadsheet model in Figure 8.13, given in Section 8.2. Note in
Table 8.2 that Stock 2 has the highest expected return and stock 3
has by far the lowest. Nevertheless, the changing cells Portfolio
(C14:E14) provide an optimal solution that calls for purchasing far
more of Stock 3 than of Stock 2. Although pur- chasing so much of
Stock 3 greatly reduces the risk of the portfo- lio, an aggressive
investor may be unwilling to own so much of a stock with such a low
expected return.
For the sake of such an investor, add a constraint to the model
that specifies that the percentage of Stock 3 in the portfolio can-
not exceed the amount specified by the investor. Then compare the
expected return and risk (standard deviation of the return) of the
optimal portfolio with that in Figure 8.13 when the upper bound on
the percentage of Stock 3 allowed in the portfolio is set at the
following values.
a. 20%
c. Generate a parameter analysis report using RSPE
to
systematically try all the percentages at 5% intervals from 0% to
50%
Given:
Reconsider the portfolio selection example, including its
spreadsheet model in Figure 8.13, given in Section 8.2. Note in
Table 8.2 that Stock 2 has the highest expected return and stock 3
has by far the lowest. Nevertheless, the changing cells Portfolio
(C14:E14) provide an optimal solution that calls for purchasing far
more of Stock 3 than of Stock 2. Although pur- chasing so much of
Stock 3 greatly reduces the risk of the portfo- lio, an aggressive
investor may be unwilling to own so much of a stock with such a low
expected return.
For the sake of such an investor, add a constraint to the model
that specifies that the percentage of Stock 3 in the portfolio can-
not exceed the amount specified by the investor. Then compare the
expected return and risk (standard deviation of the return) of the
optimal portfolio with that in Figure 8.13 when the upper bound on
the percentage of Stock 3 allowed in the portfolio is set at the
following values.
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