FIN$3002$ Assignment $2$

Problem $1$ : Portfolio Analysis $(50$ points$)$

You work for a financial institution that offers portfolios that invest in two sector funds, a Technology fund and a Utility fund. The technology fund has an average annual return of $20\mathrm{.}59\%$ and a standard deviation of $13\mathrm{.}39\%.$ The average annual return and standard deviation for the Utility fund are $8\mathrm{.}35\%$ and $2\mathrm{.}78\%,$ respectively. The correlation between the returns of the two funds is $0\mathrm{.}37.$ Assume that the clients only care about risk and return, so the mean$-$variance analysis we studied is appropriate. $($Hint: This problem is an extended version of the example in slide $8$ of the Modern Portfolio Theory lecture$)$

I highly recommend using Excel or another software for this problem, especially when graphing portfolios.

Part I: Portfolio construction

a$.$ Graph both funds in the standard deviation $(x-$axis$)$ and expected return$($y$-$axis$)$ graph.

b$.$ Obtain the standard deviation and return for portfolios constructed using the following portfolio weights

$\backslash$table$[[$Portfolios$,{}_{Technology},{}_{\text{U}\text{t}\text{l}\text{l}\text{i}\text{t}\text{y}}$