PART 1

You are given the expected return, volatility and correlation matrix assumptions for seven asset classes. Your first task is to plot the minimum variance frontier -- that is the locus of portfolio combinations that have the minimum risk for a given level of expected return. Assume there is no short-selling; in other words, your portfolio weights cannot be negative. (Hint: You can choose the option in Excel solver to make non-constrained variables non-negative.)

1. To construct the minimum variance frontier, first solve for the portfolio weights for the global minimum variance (GMV) portfolio. Compute the expected return, volatility and the Sharpe ratio of this portfolio.
2. Next, solve for the portfolio weights for the mean variance efficient (MVE) portfolio. Compute the expected return, volatility and the Sharpe ratio of this portfolio.

Complete the first spreadsheet ASSIGNMENT_MEANVARIANCE_FRONTIER_MULTIPLERISKYASSETS_PART1.XLSX provided for you by filling in the cells where you are asked to based on your analysis. To submit your answers, upload the file. You do not need to provide any other spreadsheets for your analysis.

PART 2

Given the two GMV and the MVE portfolios you have identified, now construct the minimum variance frontier by computing the expected return and volatility for various combinations of these two portfolios. Note that you will also need to compute the variance/covariance matrix and the correlation between these two portfolios.

Complete the second spreadsheet ASSIGNMENT_MEANVARIANCE_FRONTIER_MULTIPLERISKYASSETS_PART2.XLSX provided for you by filling in the cells where you are asked to based on your analysis. To submit your answers, upload the file.

PART 3

Plot the minimum variance frontier that you have constructed in the expected return (y-axis) - volatility space (x-axis). Label the GMV and the MVE portfolios on the frontier and all the axes correctly. Submit your plot in a separate file. You do not need to include your spreadsheet. All you need to submit is the plot.