FIN627 Strategy Exercise – Efficient Allocation of Capital
TEAM 4
Our group expected annual return assumptions for the three asset classes are: 8.7% for global equities, 2.0% for global fixed income, and 1.3% for USD cash. They are entered as inputs in cells B5:B7 of the main spreadsheet, and the rationale for each of them is shown in cells C5:C7.
As we do in the spreadsheet, create the efficient frontier using the Solver as described during class and in the BKM textbook: find the minimum-variance portfolio, the maximum-Sharpe (or tangency) portfolio, and other portfolios along the efficient frontier by gradually increasing your required portfolio return.
Trough the optimal (maximum-Sharpe) portfolio, and in our frontier, optimized using our return assumptions, the recommended portfolio came out as the outermost point with a 100% allocation to ACWI, 0% to BNDW, and 0% to GBIL. When you use your return assumptions, the tangency portfolio will most likely be different.