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DE LA SALLE UNIVERSITY

Economics Department
Group Project 1
Term/ Year: 1st Term/ AY 2015-2016
Subject: Subject Name: Applied Investments (SPECTO2)
Faculty: Maria Francesca Tomaliwan
OBJECTIVE AND REMINDER
1) This is a group assignment. You are not allowed to consult with nor be consulted by your classmates from
other groups. A single grade will be given for reports that are suspected to be copies of each other. This grade
will be equally divided among the students of the groups suspected to have copied from each other. Please refer
to your class lecture notes, extra handout and required textbook for details on the background theory.
2) ANY member of the group would be asked to present or discuss his/her groups solutions in class on November 5,
2015 (Thursday).
3) The objective is to gain a deeper understanding of portfolio selection criteria and gain hands-on experience to
derive (i) the minimum variance portfolio, (ii) the optimal portfolio of risky assets, and (iii) the optimal balanced
portfolio (combination of a set of optimal risky assets and a risk-free asset).
WEIGHT
1) This assignment is a compulsory component of the course. This contributes to 15% of your total grade.
SUBMISSION
All groups should submit the following:
1) an Excel file to support the project and 2 Word files 1) to answer the project questions and 2) cover sheet with
your group members names and signatures. Submit these electronically to my email addresses
(cessytomaliwan@yahoo.com and maria.francesca.tomaliwan@dlsu.edu.ph) before 6:00am on November 5,
2015 (Thursday). The excel file name must contain the course subject and surname of group members. For
example, if the group consists of 3 members: Jesus Cruz, Mary Reyes and Joseph Santos, the file name should be:
SPECTO2-Cruz, Reyes, Santos.xls
SPECTO2-Cruz, Reyes, Santos.doc
Use the same file name as a heading for your email as well such as SPECTO2-Cruz, Reyes, Santos
4) Late submissions will not be accepted nor given any credit.
FORMAT
1) All answers in the Word File should follow the following format:
Font type:
Times New Roman
Font size:
11
Margins:
1-inch (left, right, top, & bottom)
Spacing:
1.5 spacing
2) Present your answers in summarized form, making sure that the necessary explanations for your answers are
indicated where appropriate. Dont just paste answers from your calculated Excel outputs and graphs without
any explanation.
DATA AND EXCEL SOLVER
1) You are given 8 stocks to construct a number of portfolios of risky assets and optimal balanced portfolios. They
are: A, B, C, D, E, F, G and H. For each stock, 15 years of daily stocks prices (1 Jan 1996 to 31 Dec 2010). The data
covers periods of stock market boom and bust. Additionally, for each stock you are given data on the dividend
payment. In the Excel file provided, 1 sheet is given for daily stock prices and another sheet for dividend
payment.
2) To be uniformed, let us not compute the returns via excess returns. Calculate returns reported as total returns for
the sake of uniformity and simplicity.
3) The solver function in Excel can be quite sensitive to the starting values. Due to this drawback, I advise you to set
the weight so that the portfolio is equally weighted portfolio before each and every computation that involves the
Excel Solver function to avoid any disagreement with the suggested answers for grading purpose.

PROJECT QUESTIONS
Question A:
1)Discuss the procedure of calculating the stock return. What are the things you have adjusted? Explain why it is
necessary. (Remember: Calculate returns reported as total returns, No need for excess returns.)
2)Show your variance-covariance matrix of the 8 stocks based on historical daily stock returns. Discuss the
procedure of your calculation.
Question B:
Assume that short selling in stocks IS ALLOWED, use the solver function in Excel to locate the global minimum
variance portfolio (GMVP) of 8 risky assets using daily stock returns.
1) Report the objective function (state in one sentence), the step that you need to take in order to achieve
the objective (another sentence) and the constraints (another set of sentence with one sentence per
constraint) that you must satisfy as per details required by the Excel Solver dialogue box.
2) Report the composition of the minimum variance portfolio (to 4 decimals) based on daily stock returns
as per the following format:
Stocks
Weights
A
B
C
D
E
F
G
H
3) Report the standard deviation of the GMVP (in percentage values and up to 4 decimals) based on the
portfolio created in (1) and (2).
Question C:
Assume that short selling in stocks IS NOT ALLOWED, use the solver function in Excel to locate the global minimum
variance portfolio (GMVP) of 8 risky assets using daily stock returns.
1) Report the objective function (state in one sentence), the step that you need to take in order to achieve
the objective (another sentence) and the constraints (another set of sentence with one sentence per
constraint) that you must satisfy as per details required by the Excel Solver dialogue box.
2) Report the composition of the minimum variance portfolio (to 4 decimals) based on daily stock returns
as per the following format:
Stocks
Weights
A
B
C
D
E
F
G
H
3) Report the standard deviation of the GMVP (in percentage values and up to 4 decimals) based on the
portfolio created in (1) and (2).

Question D:
Assume short-selling IS ALLOWED, use solver function to locate another portfolio in your MVP of 8 risky assets that
has targeted expected return of 8.5% using daily stock returns.
1) Report the objective function (state in one sentence), the step that you need to take in order to achieve
the objective (another sentence) and the constraints (another set of sentence with one sentence per
constraint) that you must satisfy as per details required by the Excel Solver dialogue box.
2) Report the composition of the minimum variance portfolio (to 4 decimals) based on daily stock returns
as per the following format:
Stocks
Weights
A
B
C
D
E
F
G
H
3) Report the standard deviation of the portfolio in the MVP (in percentage values and up to 4 decimals)
based on the portfolio created in (1) and (2).
Question E:
Assume short-selling IS NOT ALLOWED, use solver function to locate another portfolio in your MVP of 8 risky assets
that has targeted expected return of 8.5% using daily stock returns.
1) Report the objective function (state in one sentence), the step that you need to take in order to achieve
the objective (another sentence) and the constraints (another set of sentence with one sentence per
constraint) that you must satisfy as per details required by the Excel Solver dialogue box.
2) Report the composition of the minimum variance portfolio (to 4 decimals) based on daily stock returns
as per the following format:
Stocks
Weights
A
B
C
D
E
F
G
H
3) Report the standard deviation of the portfolio in the MVP (in percentage values and up to 4 decimals)
based on the portfolio created in (1) and (2).
Question F:
Assume short-selling IS ALLOWED
1) Use Excel to construct the efficient frontier of portfolio that consists all 8 stocks based on daily stock
returns. Discuss the procedure youve done in order to be able to get the variables needed to form your
efficient frontier.
2) Plot the efficient frontier. Note that both expected return (strictly speaking, it should be realized
historical return) and standard deviation must be in decimal values and up to 5 decimals.

Question G:
Assume short-selling IS ALLOWED and the risk-free rate is 2.157% for the entire holding period.
1) Compute the tangency portfolio. Report the objective function (state in one sentence), the step that you
need to take in order to achieve the objective (another sentence) and the constraints (another set of
sentence with one sentence per constraint) that you must satisfy as per details required by the Excel
Solver dialogue box. Discuss how you went with the procedure.
2) Report the composition of the tangency portfolio (to 4 decimals) based on daily stock returns as per the
following format:
Stocks
Weights
A
B
C
D
E
F
G
H
3) Report the portfolio return, and standard deviation. Are there any negative weights in this portfolio? If
so, interpret them.
Question H:
Assume short-selling IS ALLOWED
1) Discuss the procedure on how you were able to get your complete portfolio.
2) Plot the efficient frontier you found in Question (F) the efficient frontier of the MVS portfolios
together with the CAL or portfolios that are combinations of the risk-free asset and the tangency
portfolio you found in Question (G).
3) Discuss the weights to be allocated in tangency portfolio and risk free asset based on the graph in
number (2). What made you decide to have these weights?
4) Report the composition of the complete portfolios risky assets weights (to 4 decimals) based on daily
stock returns as per the following format:
Stocks
Weights
A
B
C
D
E
F
G
H
Question I:
1) Explain why investors with different view of risk may choose to invest in different section of the CAL.