Question: Get (dollar) returns data on a developed market mutual fund (e.g., U.S.) and an emerging market fund. For example, data are available at finance.yahoo.com or

Get (dollar) returns data on a developed market mutual fund (e.g., U.S.) and an emerging market fund. For example, data are available at finance.yahoo.com or Reuters. Do not print out the data or I may deduct points!!! Estimate the annualized variances and covariances of return
(i.e., multiply daily covariances by 252, weekly variances by 52, or monthly covariances by 12).

Using these numbers calculate the correlation and standard deviation per year. Explain and justify your selection of data for estimation. You may not receive full credit unless you argue why these data are appropriate for the assignment!

Use your sample variance and covariance estimates, but not your sample means. Instead assume the expected return on developed market equities is 10% and the expected return on emerging market equities is 15%. Graph the mean vs. standard deviation frontier from portfolios of the two funds using a spreadsheet or graphical package.

What is the minimum variance combination of funds (calculate portfolio weights), and what is its risk (annualized standard deviation)?

Assume the riskless rate is 5% and these two funds comprise the "market portfolio". Graph the capital market line (connecting the riskless rate to the risky frontier) on top of the "bullet graph" from the earlier problem.

Under the assumptions above, what are the portfolio weights of the tangency or "market" portfolio?

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