Walt Disney Bonds

In: Business and Management

Submitted By ercampbe89
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Assignment #1: Virginia Capital Portfolio Optimization

Stock | Mean of Return | Standard Deviation | IBM | 1.27% | 9.38% |
1) The below table shows the mean of IBM’s Stock to be 1.27% and the standard deviation to be 9.38%.

Stock | Mean | Standard Deviation | Complete Portfolio of Weighted S&P, Lehman, and MSCI | 0.67% | 2.75% |
2)

The table above shows the mean and standard deviation of a portfolio with S&P 500, Lehman Brothers, and MSCI World Index when they are all equally weighted.

An argument that can be made for the client to sell IBM stock and diversify is about the risk involved. The standard deviation of IBM’s stock is sitting at about 9.34%, which is much higher than the diversified stocks’ standard deviation of 2.75%. This tells us that only having IBM stock creates a much more volatile return compared to the diversified portfolio. However, it is worth noting that the return for only having IBM stock is 1.27%, which is much higher than the return for the diversified portfolio, 0.67%. This concept makes sense because a higher risk should have higher return.

Stock | Weight | S&P 500 | 54.41% | MSCI World Index | 13.37% | Lehman Brothers | 32.02% |
3) The below table shows what the weight of each stock is when using the Excel solver to solve for a portfolio target standard deviation of 10%.

4) After running the solver to determine the weights for each stock with the specified target standard deviation, these are the results that came to be: S&P 500 | MSCI World Index
(Excluding US) | Lehman Brothers
Aggregate Bond Index | Target Standard Deviation | 1.74% | 6.46% | 91.80% | 2.00% | 29.63% | 10.23% | 60.14% | 6.00% | 77.70% | 16.71% | 5.59% | 14.00% | 118.87% | 21.35% | -33.22% | 20.00% |

Not all of these portfolios are feasible however. When attempting to find the weights for a…...

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