Partners Case: Please answer the following questions

1. Suppose different hospitals within Partner's system choose different mixes of the "risk-free" STP and baseline LTP, whose future expected returns and risks are shown in Exhibit 3.
   1. On Exhibit 3, plot the returns and risks of the various potential portfolios that can be formed by allocating funds between the STP and baseline LTP. What shape does a line drawn through these portfolios take? Why?
   2. In contrast, what would the risk-return opportunities available to the hospitals be if they could invest only in STP and US Equities?

1. On Exhibit 5, plot the curve for the risks and expected returns of the optimal combinations in the 4 asset case detailed in Exhibit 6, namely: US Equities, Foreign Equities, Bonds, and REITs. Do the same for the 4 asset case shown in Exhibit 7: US, Foreign, Bonds, and commodities. Do the same for the 5 asset class detailed in Exhibit 8: US, Foreign, Bonds, REITs and commodities. How much does each of the "real assets" improve the potential opportunities for the hospitals investing in the LTP? What are the important factors that determine the degree of improvement?

1. Consider the hospital that wishes to invest in the STP and the LTP such that the total expected return on the portfolio is 6%. How does the introduction of real assets alter the risk and composition of their most attractive portfolio?

1. Consider the hospital that is fully invested in the LTP with its current standard deviation and wishes to maintain this level of risk. How much does the introduction of real assets help them, if at all?
2. 

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Exhibit 5a Array of Optimal Portfolios with only U.S., Foreign, and Bonds Asset Allocation Portfolio Expected Ret. Stdev US Equity Foreign Equity Bonds 1 7.00% 9.38% 0.000 0.228 0.772 2 7.50% 9.14% 0.000 0.299 0.701 3 8.00% 9.06% 0.038 0.330 0.632 4 8.50% 9.10% 0.087 0.348 0.565 5 9.00% 9.27% 0.136 0.367 0.497 6 9.50% 9.55% 0.185 0.386 0.429 7 10.00% 9.94% 0.234 0.404 0.362 8 10.50% 10.43% 0.283 0.423 0.294 9 11.00% 11.00% 0.332 0.442 0.227 10 11.50% 11.64% 0.381 0.460 0.159 11 12.00% 12.33% 0.430 0.479 0.092 12 12.50% 13.08% 0.479 0.497 0.024 Source: Thomson Financial Datastream. Exhibit 5b Risk-Return Plot of Optimal Portfolios with only U.S., Foreign, and Bonds 14.0% 12.0% 10.0% US Equity Foreign Equity Baseline Commodities LTP 8.0% Expected Return 6.0% Bonds 4.0% 2.0% REITs 0.0% 0.0% 5.0% 10.0% Stdev 15.0% 20.0% Source: Thomson Financial Datastream. Exhibit 5a Array of Optimal Portfolios with only U.S., Foreign, and Bonds Asset Allocation Portfolio Expected Ret. Stdev US Equity Foreign Equity Bonds 1 7.00% 9.38% 0.000 0.228 0.772 2 7.50% 9.14% 0.000 0.299 0.701 3 8.00% 9.06% 0.038 0.330 0.632 4 8.50% 9.10% 0.087 0.348 0.565 5 9.00% 9.27% 0.136 0.367 0.497 6 9.50% 9.55% 0.185 0.386 0.429 7 10.00% 9.94% 0.234 0.404 0.362 8 10.50% 10.43% 0.283 0.423 0.294 9 11.00% 11.00% 0.332 0.442 0.227 10 11.50% 11.64% 0.381 0.460 0.159 11 12.00% 12.33% 0.430 0.479 0.092 12 12.50% 13.08% 0.479 0.497 0.024 Source: Thomson Financial Datastream. Exhibit 5b Risk-Return Plot of Optimal Portfolios with only U.S., Foreign, and Bonds 14.0% 12.0% 10.0% US Equity Foreign Equity Baseline Commodities LTP 8.0% Expected Return 6.0% Bonds 4.0% 2.0% REITs 0.0% 0.0% 5.0% 10.0% Stdev 15.0% 20.0% Source: Thomson Financial Datastream.