Investment Portfolio data analysis in MS Excel 2007 (with Solver add-in)

1. Portfolio Optimization
Stock Input Data
Stock-1 Stock-2 Stock-3
Mean Return 0.14 0.11 0.10
SD of Return 0.20 0.15 0.08
Correlations Stock-1 Stock-2 Stock-3 Covariances Stock-1
Stock-1 1 0.60 0.40 Stock-1 0.0400
Stock-2 0.60 1 0.70 Stock-2 0.0180
Stock-3 0.40 0.70 1 Stock-3 0.0064
Investment Decisions
Stock-1 Stock-2 Stock-3 Sum Required
Fractions to Invest 0.5 0 0.5 1.00 = 1.00 →
Expected Return
Actual must be Required
0.1200 >= 0.12 → Constraint
Portfolio Variance 0.0148
Portfolio SD 0.121655 → objective function
Risk Verses Return
Req'd Return Stock-1 Stock-2 Stock-3 SD Return
0.100
0.105
0.110
0.115
0.120
0.125
0.130
0.135
0.140

2. info given /cell
excel:: Product of cell calculation
decision variable/cell
Solver computation
Stock-2 Stock-3
0.0180 0.0064
0.0225 0.0084
0.0084 0.0064
Transpose of Fractions to Invest
Constraint for calc Portfolio Variance
0.5
0
0.5

3. EMP 504 CH 08: Nonlinear LP Investment Portfolio Rebecca Paris #106909694
Portfolio Optimization info given /cell
excel:: Product of cell calculation
Stock Input Data decision variable/cell
Stock-1 Stock-2 Stock-3 Solver computation
Mean Return 0.14 0.11 0.10
SD of Return 0.20 0.15 0.08
Correlations Stock-1 Stock-2 Stock-3 Covariances Stock-1 Stock-2 Stock-3
Stock-1 1 0.60 0.40 Stock-1 0.0400 0.0180 0.0064
Stock-2 0.60 1 0.70 Stock-2 0.0180 0.0225 0.0084
Stock-3 0.40 0.70 1 Stock-3 0.0064 0.0084 0.0064
Investment Decisions
Stock-1 Stock-2 Stock-3 Sum Required Transpose of Fractions to Invest
Fractions to Invest 0.5 0 0.5 1.00 = 1.00 → Constraint for calc Portfolio Variance
0.5
Expected Return 0
Actual must be Required 0.5
0.1200 >= 0.1200 → Constraint
Portfolio Variance 0.0148
Portfolio SD 0.1217 → objective function
Risk Verses Return
Req'd Return Stock-1 Stock-2 Stock-3 SD Act.Return
0.100 0.0000 0.0000 1.0000 0.0800 0.1000 Efficiency Frontier
0.105 0.1250 0.0000 0.8750 0.0832 0.1050
0.110 0.2500 0.0000 0.7500 0.0922 0.1100 0.1500
0.115 0.3750 0.0000 0.6250 0.1055 0.1150
0.120 0.5000 0.0000 0.5000 0.1217 0.1200
0.1400
0.125 0.6250 0.0000 0.3750 0.1397 0.1250
0.130 0.7500 0.0000 0.2500 0.1591 0.1300
0.1300
Portfolio Return
0.135 0.8750 0.0000 0.1250 0.1792 0.1350
0.140 1.0000 0.0000 0.0000 0.2000 0.1400
0.1200
0.1100
0.1000
0.0900
0.0000 0.0500 0.1000 0.1500 0.2000 0.2500
Portfolio Std Dev