Question

In: Finance

Construct a portfolio from the following assets: - SPY (SPDR S&P 500 ETF Trust) - BND...

Construct a portfolio from the following assets:
- SPY (SPDR S&P 500 ETF Trust)
- BND (Vanguard Total Bond Market ETF)
- IYR (iShares US Real Estate ETF)
- SHV (iShares Short Treasury Bond ETF)
- DBC (Invesco DB Commodity Tracking)

With an investment period of 01/01/2014 to 01/01/2019, the goal is to achieve a target return of 4% with minimum volatility. Estimate expected returns and volatility from the 5-year time series. Assume a portfolio of $100 million, allocating no less than $10 million and no more than $50 million to each asset. You should compute the five weights for the five asset classes, as well as the expected return and volatility of the portfolio (annualized).

Expert Solution

Lets see brief about each and every stock before allocating and calculatig the return and volatality

SPY (SPDR S&P 500 ETF TRUST):

It is trust, which means it is a low risk stock and low return stock

BND (Vanguard total bond market ETF)

It is a bond, which means it is over risk than trust but usually it is low risk only and a fixed return stock

IYR (ishares US real estate ETF)

It is a share, and its is a real estate share, which means it is high risk stock and high return stock

SHV (ishares short teasury bond ETF)

it is a share and it is a short teasury bond share, which means it is a little less risk than IYR, but it is also usually risky and high return share

DBC (Invesco DB commodity trackig)

It is a commodity, which is also risky and high return but lower than shares.

Investment period:

01/01/2014 to 01/01/2019

Target return

4%

Portfolio amount

$100 million

Conditions:

1. Not less than $10 million in each and every stock

2. Not more than $50 million in each stock

So, the conclusion ,

As per condition number one invest $10 million in each and very stock

Invest balace $50 millions in SPY & BND for fixed return. Because it is low risky and we can easily achieve our target return of 4%

the above portfolio is low volatality

More information like return and risk of each and every stock required to evaluate exact return and volatality of stocks.

jeff jeffy answered 2 years ago

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