FIN301: Portfolio Optimization and Efficient Frontier Analysis

This assignment focuses on portfolio optimization and investment strategies. Students are tasked with applying concepts like minimum variance portfolios, the efficient frontier, and the Sharpe Ratio to construct optimal portfolios using Excel Solver. The assignment explores both two-asset and multi-asset portfolios, considering constraints like long-only investments and short selling. Students analyze the characteristics of different portfolios, comparing their risk and return profiles. The assignment also involves calculating the weights of various assets to achieve the highest Sharpe Ratio and evaluating the impact of short selling on portfolio performance. The student is required to calculate the weight for WFC and MSFT for the minimum variance portfolio, the weight for WFC in the optimal risky portfolio, and the weights of VBTLX and VFIAX to achieve an optimal risky portfolio. The assignment also touches upon the comparison of optimal risky portfolios and the impact of short selling versus long-only strategies.

1. Question 1
Using the estimation technique described in Step 3.1, what percentage of your
investment would you allocate to WFC and MSFT, respectively, to arrive at a portfolio
with the minimum variance?
60%; 40%
55%; 45%
45%; 55%
40%; 60%
Question 2
1
point
2. Question 2
Using the Solver technique described in Step 3.2, what more precise percentage of your
investment would you allocate to WFC and MSFT, respectively, to arrive at a portfolio
with the minimum variance?
44.3%; 55.7%
44.7%; 55.3%
59.2%; 40.8%
55.3%; 44.7%
1
point
3. Question 3
Using the same Solver techniques, what would be the weight for WFC in the "optimal
risky portfolio" on the efficient frontier consisting of WFC and MSFT?

Write your answer as a percentage, with no percentage symbol ("%"), rounded to the
nearest tenth percentage point (e.g., you would write "48.1234%" as "48.1", not
"0.481234").
Hint: Your goal now is to find the maximum value of the Sharpe Ratio of the portfolio.
Assume the "risk free asset" rate = 0.
Question 4
1
point
4. Question 4
Compare your optimal risky portfolio characteristics to those of the two individual stocks
used in the portfolio. What do you find?
The optimal risky portfolio displays a higher Sharpe Ratio than either of the two stocks
used in the portfolio.
The optimal risky portfolio displays a lower Sharpe Ratio than either of the two stocks
used in the portfolio.
The optimal risky portfolio displays the same Sharpe Ratio as at least one of the two
stocks used in the portfolio.
1
point
5. Question 5
Refer to Step 3.3. In the "Unconstrained" or "Short Selling" version of the optimal risky
portfolio, what is the weight for XOM?
Write your answer as a percentage, with no percentage symbol ("%"), rounded to the
nearest tenth percentage point (e.g., you would write "48.1234%" as "48.1", not
"0.481234").
Hint: You can use the same logic and Solver built from Step 3.2.
1
point
6. Question 6
31.9
22.0

Refer to Step 3.3. In the "Constrained" or "Long Only" version of the optimal risky
portfolio, what is the weight for GOOG?
Write your answer as a percentage, with no percentage symbol ("%"), rounded to the
nearest tenth percentage point (e.g., you would write "48.1234%" as "48.1", not
"0.481234").
Hint: You can use the same logic and Solver built from Step 3.2.
1
point
7. Question 7
Refer to Step 3.3. In the "Unconstrained" or "Short Selling" version of the optimal risky
portfolio, what is the portfolio mean?
Write your answer as a percentage, with no percentage symbol ("%"), rounded to the
nearest hundredth percentage point (e.g., you would write "48.1234%" as "48.12", not
"0.481234").
1
point
8. Question 8
Refer to Step 3.3. In the "Constrained" or "Long Only" version of the optimal risky
portfolio, what is the portfolio standard deviation?
Write your answer as a percentage, with no percentage symbol ("%"), rounded to the
nearest hundredth percentage point (e.g., you would write "48.1234%" as "48.12", not
"0.481234").
1
point
9. Question 9
Refer to Step 3.3. In the "Unconstrained" or "Short Selling" version of the optimal risky
portfolio, what is the portfolio Sharpe Ratio?
Write your answer as a number rounded to the nearest thousandth percentage point
(e.g., you would write "0.073214" as "0.073").
Question 10
17.5
0.11
1.26
0.088

1
point
10. Question 10
Comparing the two optimal risky portfolios (one allowing short selling and the other long-
only), what do you find regarding the Sharpe Ratios?
When short selling is allowed, the portfolio is able to attain a higher level of Sharpe Ratio
When only long selling is allowed, the portfolio is able to attain a higher level of Sharpe
Ratio
The Sharpe Ratio is the same