Question: The CFO at Performance Lawn Equipment, Brian Ferguson, wishes to design a minimum variance portfolio of index funds to invest some of the firm's cash

 The CFO at Performance Lawn Equipment, Brian Ferguson, wishes to design

The CFO at Performance Lawn Equipment, Brian Ferguson, wishes to design a minimum variance portfolio of index funds to invest some of the firm's cash reserves. The funds selected for consideration and their variance- covariance matrix and average returns are given in the CASE: PERFORMANCE LAWN EQUIPMENT table below. . The firm would like to achieve a target return of 0.19%. What mix of investments would achieve this? To obtain better diversification, the CFO would like to restrict the percentage of investments in each fund as Bond: between 10% and 50% S&P 500: between 30% and 50% Small cap: no more than 20% Mid cap: no more than 20% Large cap: no more than 25% Emerging market: no more than 10% Commodity: no more than 20% How would the optimal portfolio and objective change? Summarize your findings in a short memo to Mr. Ferguson follows: Bond S&P 500 Small Cap Mid Cap Emerging Large Cap Market Commodity Bond S&P 500 0.002% -0.001% -0.001% -0.001% -0.001% 0.000% 0.020% 0.027% 0.024% 0.019% 0.032% 0.047% 0.039% 0.027% 0.050% 0.033% 0.023% 0.043% 0.027% 0.041 % 0.085% Small cap Mid cap Large cap Emerging market Commodity Average weekly return 0.000% 0.044% 0.000% 0.118% 0.005% 0.256% 0.005% 0.226% 0.009% 0.242% 0.015% 0.447% 0.054% 0.053% The CFO at Performance Lawn Equipment, Brian Ferguson, wishes to design a minimum variance portfolio of index funds to invest some of the firm's cash reserves. The funds selected for consideration and their variance- covariance matrix and average returns are given in the CASE: PERFORMANCE LAWN EQUIPMENT table below. . The firm would like to achieve a target return of 0.19%. What mix of investments would achieve this? To obtain better diversification, the CFO would like to restrict the percentage of investments in each fund as Bond: between 10% and 50% S&P 500: between 30% and 50% Small cap: no more than 20% Mid cap: no more than 20% Large cap: no more than 25% Emerging market: no more than 10% Commodity: no more than 20% How would the optimal portfolio and objective change? Summarize your findings in a short memo to Mr. Ferguson follows: Bond S&P 500 Small Cap Mid Cap Emerging Large Cap Market Commodity Bond S&P 500 0.002% -0.001% -0.001% -0.001% -0.001% 0.000% 0.020% 0.027% 0.024% 0.019% 0.032% 0.047% 0.039% 0.027% 0.050% 0.033% 0.023% 0.043% 0.027% 0.041 % 0.085% Small cap Mid cap Large cap Emerging market Commodity Average weekly return 0.000% 0.044% 0.000% 0.118% 0.005% 0.256% 0.005% 0.226% 0.009% 0.242% 0.015% 0.447% 0.054% 0.053%

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