TABLE 17 Annual Returns on Assets Year Stocks Gold T-Bills 1968 11 1969 -9 1970 4...

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TABLE 17 Annual Returns on Assets Year Stocks Gold T-Bills 1968 11 1969 -9 1970 4 1971 14 1972 19 1976 24 1977-7 1973 -15 66 7 1978 7 1974 -27 64 8 1979 19 1975 37 0 6 1980 33 1981-5 1982 22 1983 23 1984 6 1985 32 11 5 1986 19 8 7 1987 5 -14 7 1988 17 14 4 44 4 -22 5 18 5 31 7 59 10 99 11 -25 15 4 11 -11 9 -15 10 -12 8 16 6 22 5 -2 6 (Refer to Problem 9 data.) Suppose that you now hold 30% of your investment in stocks, 50% in T-bills, and 20% in gold. Assume that transactions incur costs. Every $100 of stocks traded costs you $1, every $100 of your gold portfolio traded costs you $2, and every $1 of your T-bill portfolio traded costs you 5d. Find the minimum variance portfolio that yields, after transaction costs, an expected return of at least 10%. (Hint: Define variables for the dollars bought or sold in each investment.) TABLE 17 Annual Returns on Assets Year Stocks Gold T-Bills 1968 11 1969 -9 1970 4 1971 14 1972 19 1976 24 1977-7 1973 -15 66 7 1978 7 1974 -27 64 8 1979 19 1975 37 0 6 1980 33 1981-5 1982 22 1983 23 1984 6 1985 32 11 5 1986 19 8 7 1987 5 -14 7 1988 17 14 4 44 4 -22 5 18 5 31 7 59 10 99 11 -25 15 4 11 -11 9 -15 10 -12 8 16 6 22 5 -2 6 (Refer to Problem 9 data.) Suppose that you now hold 30% of your investment in stocks, 50% in T-bills, and 20% in gold. Assume that transactions incur costs. Every $100 of stocks traded costs you $1, every $100 of your gold portfolio traded costs you $2, and every $1 of your T-bill portfolio traded costs you 5d. Find the minimum variance portfolio that yields, after transaction costs, an expected return of at least 10%. (Hint: Define variables for the dollars bought or sold in each investment.)

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