Risk Premium:

Amazon	0,101567
Exxon	0,117428
Walmart	0,099731

ABC college is a community college with a $100 million endowment. The endowment committee of ABC college is interested in knowing if ABC college should diversify its portfolio holdings to include emerging market stocks (i.e., the iShares MSCI Emerging Markets ETF fund), and precious metals (i.e. the U.S. Global Investors Gold and Precious Metals Fund) in its portfolio. Make a case for or against the inclusion of these alternative assets in ABC college's overall portfolio. Justify your decision by depicting the portfolio frontier in the presence of the five risky assets (i.e., the three risky assets that make up the current portfolio plus emerging market stocks and precious metals). Calculate the efficient portfolio allocations required to achieve the ‘floor’ rate of return of 0.8% per month (mandated by the college) with this expanded universe of assets. What is the expected standard deviation of such a portfolio?

Returns on emerging market stocks and precious metals can be found at Yahoo Finance.

Solve in excel with the formula shown.
 

Transcribed Image Text:

You found the following covariance matrix for 3 stocks: A 1 2 Amazon 3 Exxon 4 Walmart D E F Amazon Exxon Walmart 0.025 0.01 0.21 0.02 0.02 0.15 0.35 0.025 0.01 You found the following covariance matrix for 3 stocks: A 1 2 Amazon 3 Exxon 4 Walmart D E F Amazon Exxon Walmart 0.025 0.01 0.21 0.02 0.02 0.15 0.35 0.025 0.01

Answer rating: 100% (QA)

Case for Inclusion of Alternative Assets The inclusion of emerging market stocks and precious metals in ABC Colleges overall portfolio could be benefi... View the full answer