CBO-iShares 1-5 year Laddered Corporate Bond Index ETF- and XIU-iShares S&P/TSX 60 Index ETF-
are two iShares ETFs tracking and Canadian bond market and Canadian equity
market, respectively. Thus, they are popularly used by Canadian investors as
proxies for Canadian bond and equity markets.
You can find out the historical
closing prices of CBO and XIU from the following website: http://ca.ishares.com/product_info/fund/index.htm
Download the most recent three years weekly date.
Suppose that now you have $80
million to invest for six months and you want to invest those money into CBO,
XIU and the Canadian 6-month T-bill. Assume that the interest rate of the
6-month T-bill is 2% per annum.
Use EXCEL to answer following questions:
Estimate the weekly expected returns, standard
deviations of CBO and XIU, respectively, and their correlation and covariance.
Then convert them into those with six-month (26 weeks) horizon.
Draw the opportunity set offered by these two
What is the optimal portfolio of CBO and XIU?
What are the expected return and standard deviation of this portfolio?
Choose your degree of risk aversion with a range
of the A value from 1 to 8.
Determine your optimal asset allocation among
CBO, XIU, and T-bill, in percentage, dollar amounts, and number of shares. What
are the expected return and standard deviation of your complete portfolio?
Attach first and last pages of your spreadsheets to your
assignment. However, you should answer the questions in a separate paper.