Sample Economics Homework Worksheet printable pdf download

Sample Economics Homework Worksheet

Prof. Tim Bollerslev

Economics 471/571

Spring 2017

Homework 1

This homework is due by 10am on Thursday, March 1, 2017.

You should form groups of up to four class members. Each group should hand in only one

solution electronically by emailing a single pdf ﬁle to Ben at: bingzhi.zhao@duke.edu.

Do not attach excel spreadsheets; instead, include screenshots where appropriate. Clearly

write the names of all group members on your solution. Try to be brief and concise, but

show all your work. Be accurate with your calculations; incorrect calculations, regardless of

their origin, may still be penalized. That is, even if you just made a “stupid” mistake in

Excel, you may still lose some points. Moral of the story: be careful and THINK about your

answers.

Asset Allocation

The HW1-1.xlsx spreadsheet contains annual returns on the S&P 500 (Stocks) and 10-year

Treasury Bonds (Bonds) from 1928 to 2016.

a. Calculate the historical sample means, standard deviations, and correlation for the two

return series.

Using the sample values that you just calculated as your estimates for the means, standard

deviations, and correlation, answer the rest of this problem without the use of a mean-

variance portfolio optimizer/spreadsheet program. Show all of your calculations and

relevant formula.

b. Calculate and plot the mean-variance stock-bond portfolio frontier. Which portfolio has

minimum variance? Which portfolios are eﬃcient?

c. How would you construct a portfolio with an annual expected return of 10%? What is the

standard deviation of the return on this portfolio? Indicate the location of the portfolio

on the graph that you constructed for the previous question.

Sample Economics Homework Worksheet