Question
In: Operations Management
Problem 5-09 The table below shows data on the returns over five 1-year periods for seven...
Problem 5-09
The table below shows data on the returns over five 1-year periods for seven mutual funds. A firm's portfolio managers will assume that one of these scenarios will accurately reflect the investing climate over the next 12 months. The probabilities of each of the scenarios occurring are 0.1, 0.3, 0.1, 0.1, and 0.4 for years 1 to 5, respectively.
| RETURNS OVER FIVE 1-YEAR PERIODS FOR SEVEN MUTUAL FUNDS | |||||
| Planning Scenarios for Next 12 Months | |||||
| Mutual Funds | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Large-Cap Stock | 35.3 | 20.0 | 28.3 | 10.4 | -9.3 |
| Mid-Cap Stock | 32.3 | 23.2 | -0.9 | 49.3 | -22.8 |
| Small-Cap Stock | 20.8 | 22.5 | 6.0 | 33.3 | 6.1 |
| Energy/Resources Sector | 25.3 | 33.9 | -20.5 | 20.9 | -2.5 |
| Health sector | 49.1 | 5.5 | 29.7 | 77.7 | -24.9 |
| Technology Sector | 46.2 | 21.7 | 45.7 | 93.1 | -20.1 |
| Real Estate Sector | 20.5 | 44.0 | -21.1 | 2.6 | 5.1 |
- Develop a portfolio model with Excel Solver for investors who
are willing to risk a portfolio with a return no lower than 2%.
Round your answers to one decimal place. For subtractive or
negative numbers use a minus sign even if there is a + sign before
the blank. If the constant is "1" it must be entered in the
box.
To determine the percentage of the portfolio that will be invested in each of the mutual funds we use the following decision variables:
LS = proportion of portfolio invested in a large-cap stock mutual fund MS = proportion of portfolio invested in a mid-cap stock fund SS = proportion of portfolio invested in a small-cap growth fund ES = proportion of portfolio invested in an energy sector fund HS = proportion of portfolio invested in a health sector fund TS = proportion of portfolio invested in a technology sector fund RS = proportion of portfolio invested in a real estate sector fund Max s.t. LS + MS + SS + ES + HS + TS + RS LS + MS + SS + ES + HS + TS + RS ≥ LS + MS + SS + ES + HS + TS + RS ≥ LS + MS + SS + ES + HS + TS + RS ≥ LS + MS + SS + ES + HS + TS + RS ≥ LS + MS + SS + ES + HS + TS + RS ≥ LS + MS + SS + ES + HS + TS + RS = LS, MS, SS, ES, HS, TS, RS ≥ 0 - Solve the model in part (a) and recommend a portfolio
allocation for the investor with this risk tolerance. Round
portfolio return to three decimal places and other answers to one
decimal place. If your answer is zero, enter "0".
The recommended allocation is to invest as follows:
% of the portfolio in the large-cap stock mutual fund % of the portfolio in the mid-cap stock fund % of the portfolio in the small-cap stock fund % of the portfolio in the energy sector fund % of the portfolio in the health sector fund % of the portfolio in the technology sector fund % of the portfolio in the real estate sector fund
The expected portfolio return is %. - Modify the portfolio model in part (a) and solve it to develop
a portfolio for an investor with a risk tolerance of 0%. Round
portfolio return to three decimal places and other answers to one
decimal place. If your answer is zero, enter "0".
The recommended allocation is to invest as follows:
% of the portfolio in the large-cap stock mutual fund % of the portfolio in the mid-cap stock fund % of the portfolio in the small-cap stock fund % of the portfolio in the energy sector fund % of the portfolio in the health sector fund % of the portfolio in the technology sector fund % of the portfolio in the real estate sector fund
The expected portfolio return is %.
Solutions
keosha answered 4 months agoRelated Solutions
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Please show me each step. Thank you
The following table shows the annual returns over a six year period for the S&P 500...
The following table shows the annual
returns over a six year period for the S&P 500 market index and
MCH, Inc. Assume that the historical information represents a
population. Use this data to calculate the correlation between both
sets of security returns. Discuss your findings.
Year
S&P
500
MCH,
Inc.
2013
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2014
0.13
0.09
2015
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2016
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2017
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2018
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2006
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2
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3
18%
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4
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5
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6
10%
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40%
7
26%
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8
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30%
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9
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-32%
-4%
10
38%
28%
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11
27.0%
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12
6.3%
13.5%
-48.6%
13
16.2%
-12.6%
13.5%
14
-19.8%
-13.5%
6.3%
15
-12.6%
1.8%
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