Markova eagerly awaited his first day at his new job with Athena Asset Management in a major metropolitan area in the northeastern United States. His future boss had given him a list of questions that would prepare him well for the Job. According to the boss: If you can master these questions, you’ll be well on your way to coming a portfolio manager!

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Before attempting those questions, be sure to read carefully Chapter 8 of Boodle, Kane, and Maraca’s Investments book. Also, I have Included an Excel spreadsheet (Exhibit 1 1, which contains data on several stocks,l including returns, standard deviations and correlations, and a simple three asset optimizer model, which makes use of the Microsoft Excel Solver Add-in, along with some simple instructions. Markova starting date of September 1 was approaching fast; it was, in fact, only a week away. He was determined to finish the practice questions that day. 1.

Go to the restores “Three Asset Optimizer in Exhibit 2. Note that the stocks are arbitrarily weighted so that they each make up about 1/3 of the portfolio. Tools Solver will allow you to solve for the weightings that maximize your Sharpe ratio and therefore represent your optimal portfolio for your risky assets. Go to Tools Solver. Most of the following parameters should be saved In the wizard box that pops up: 0 Your target cell Is the Sharpe ratio formula; You are trying to maximize it; By changing the three cells that contain your weightings; With the constraint that the sum of your weightings equals 1 .

Specifically, the stocks that are included in the spreadsheet are GM, GE, MR. (Merck), AAA (Alcoa), IP (International Paper), MOM, and AOL. This case was prepared by Assistant Professor George Alliances. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 0 2001 by the University of Virginia Darned School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e- mail to [email protected]. Com.

No part of this publication may be reproduced, toured in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means-?electronic, mechanical, photocopying, recording, or otherwise-?without the permission of the Darned School Foundation. Page 1 of 4 -2- This document is authorized for use only by sang line at SIMD. Please do not copy or redistribute. Contact [email protected]. Com for questions or If everything appears correct, hit Solve and the Excel Solver should iterate until it arrives at the optimal portfolio (base case).