Annual Return Data Date U.S. Large Cap U.S. Bonds U.S. T-Bills Gold 60% U.S. Large Cap 40% U.S. Bonds 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Avg. Std. Dev. Sharpe Ratio 15.72% 10.63% 4.51% 18.86% 7.34% 9.76% -2.32% 35.20% 23.61% 24.69% 30.54% 8.97% -2.04% -17.26% -24.29% 32. 19% 4.43% 8.36% 12.36% -4.15% -40.09% 30.03% 19.76% 2.04% 8.70% 17.78% 27.38% 7.68% 13.9274 8.88% 15.43% 7.36% 9.88% -2.48% 18.42% 3.79% 9.66% 8.80% -0.564 11.64% 8.67% 8.50% 4.20% 4.45% 2.60% 4.48% 7.12% 5.26% 6.17% 6.65% 7.79% 7.43% 4.55% 79.08% 6.36% 8.38% 7.84% 5.60% 3.50% 2.90% 3.91% 5.60% 5.20% 5.25% 4.85% 4.69% 5.88% 3.86% 1.63% 1.02% 1.19% 2.98% 4.81% 4.67% 1.68% 0.09% 0.09% 0.04% 3.83% 2.32% 0.00% -15.26% -2.84% -3.11% -8.56% -5.73% 17.68% -2.17% 0.98% -4.59% -21.41% -0.83% 0.85% -5.44% 0.75% 25.57% 19.8974 4.65% 17.77% 23.20% 31.92% 4.32% 25.04% 29.24% 8.93% 5.87% 14.26% 14.26% 12.50% 11.94% 6.26%4 17.4974 7.35% 9.81% -2.39% 28.49% 15.68% 18.68% 21.8474 5.16% 3.43% -6.89% - 11.17% 20.99% 4.44% 6.06% 9.20% 0.36% -21.95% 20.48% 14.5274 4.34% 8.19% 11.17% 39.01% Combined Portfolios 50% U.S. Large Cap 34% U.S. Large Cap 33% U.S. Bonds 40% U.S. Bonds 33% Gold 10% Gold 9.40% 2.84% 10.60% 7.27% 5.50% 3.44% 14.74% 8.68% 6.04% 3.0374 10.60% 12.4124 -2.37% -2.32% 25.07% 18.37% 12.86% 7.76% 14.074 4.52% 18.71% 13.01% 4.35% 3.15% 3.09% 1.35% -5.09% -2.76% -6.19% 2.98% 19.76% 18.89% 4.46% 4.51% 7.00% 9.57% 10.29% 13.33% 3.97% 11.47% -17.51% -10.47% 19.98% 20.51% 15.47% 18.57% 5.03% 6.21% 7.91% 7.35% 9.33% 7.44% 43.70% 47.21% U.S. Bonds U.S. T-Bills Gold U.S. Correl. Large Cap U.S. Large Cap 1.00 U.S. Bonds 0.20 U.S. T-Bills 0.14 Gold -0.11 1.00 0.37 -0.23 1.00 -0.60 100 Using the annual return data for U.S. large equities, U.S. bonds, and gold provided in case Exhibit 2, calculate the mean, standard deviation for each asset class, and the cross- correlations for the three asset classes. Given these numbers, which of these asset classes would you be most interested in investing in? Are these results consistent with the WGC's claim of superior risk-adjusted returns? Again, using the return data from case Exhibit 2, calculate the annual returns from 1988-2011 for three different portfolios using the weighted average return formula (i.e., RPortfolia = WgtusLargecap * Ruslasgelap + WgtUSBonds * RusBonds + Wgtaald * RGold) and assuming the portfolio is rebalanced to these weights each year: . . 60% U.S. large cap / 40% U.S. bond 50% U.S. large cap / 40% U.S. bond / 10% gold 34% U.S. large cap / 33% U.S. bond / 33% gold From these returns, calculate the mean and standard deviation of each portfolio. Comparing the portfolios, which one would you prefer and why? Annual Return Data Date U.S. Large Cap U.S. Bonds U.S. T-Bills Gold 60% U.S. Large Cap 40% U.S. Bonds 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Avg. Std. Dev. Sharpe Ratio 15.72% 10.63% 4.51% 18.86% 7.34% 9.76% -2.32% 35.20% 23.61% 24.69% 30.54% 8.97% -2.04% -17.26% -24.29% 32. 19% 4.43% 8.36% 12.36% -4.15% -40.09% 30.03% 19.76% 2.04% 8.70% 17.78% 27.38% 7.68% 13.9274 8.88% 15.43% 7.36% 9.88% -2.48% 18.42% 3.79% 9.66% 8.80% -0.564 11.64% 8.67% 8.50% 4.20% 4.45% 2.60% 4.48% 7.12% 5.26% 6.17% 6.65% 7.79% 7.43% 4.55% 79.08% 6.36% 8.38% 7.84% 5.60% 3.50% 2.90% 3.91% 5.60% 5.20% 5.25% 4.85% 4.69% 5.88% 3.86% 1.63% 1.02% 1.19% 2.98% 4.81% 4.67% 1.68% 0.09% 0.09% 0.04% 3.83% 2.32% 0.00% -15.26% -2.84% -3.11% -8.56% -5.73% 17.68% -2.17% 0.98% -4.59% -21.41% -0.83% 0.85% -5.44% 0.75% 25.57% 19.8974 4.65% 17.77% 23.20% 31.92% 4.32% 25.04% 29.24% 8.93% 5.87% 14.26% 14.26% 12.50% 11.94% 6.26%4 17.4974 7.35% 9.81% -2.39% 28.49% 15.68% 18.68% 21.8474 5.16% 3.43% -6.89% - 11.17% 20.99% 4.44% 6.06% 9.20% 0.36% -21.95% 20.48% 14.5274 4.34% 8.19% 11.17% 39.01% Combined Portfolios 50% U.S. Large Cap 34% U.S. Large Cap 33% U.S. Bonds 40% U.S. Bonds 33% Gold 10% Gold 9.40% 2.84% 10.60% 7.27% 5.50% 3.44% 14.74% 8.68% 6.04% 3.0374 10.60% 12.4124 -2.37% -2.32% 25.07% 18.37% 12.86% 7.76% 14.074 4.52% 18.71% 13.01% 4.35% 3.15% 3.09% 1.35% -5.09% -2.76% -6.19% 2.98% 19.76% 18.89% 4.46% 4.51% 7.00% 9.57% 10.29% 13.33% 3.97% 11.47% -17.51% -10.47% 19.98% 20.51% 15.47% 18.57% 5.03% 6.21% 7.91% 7.35% 9.33% 7.44% 43.70% 47.21% U.S. Bonds U.S. T-Bills Gold U.S. Correl. Large Cap U.S. Large Cap 1.00 U.S. Bonds 0.20 U.S. T-Bills 0.14 Gold -0.11 1.00 0.37 -0.23 1.00 -0.60 100 Using the annual return data for U.S. large equities, U.S. bonds, and gold provided in case Exhibit 2, calculate the mean, standard deviation for each asset class, and the cross- correlations for the three asset classes. Given these numbers, which of these asset classes would you be most interested in investing in? Are these results consistent with the WGC's claim of superior risk-adjusted returns? Again, using the return data from case Exhibit 2, calculate the annual returns from 1988-2011 for three different portfolios using the weighted average return formula (i.e., RPortfolia = WgtusLargecap * Ruslasgelap + WgtUSBonds * RusBonds + Wgtaald * RGold) and assuming the portfolio is rebalanced to these weights each year: . . 60% U.S. large cap / 40% U.S. bond 50% U.S. large cap / 40% U.S. bond / 10% gold 34% U.S. large cap / 33% U.S. bond / 33% gold From these returns, calculate the mean and standard deviation of each portfolio. Comparing the portfolios, which one would you prefer and why