Assignment: Alex Sharpes Portfolio Scenario 1

Assuming Alex Sharpe is very risk averse so she will go for minimum risk: Using data table we find that if she includes Reynolds into her already existing portfolio, she faces minimum risk when investing 94% in Vanguard and 6 % in Reynolds. Minimum risk is 4.080% and return she gets is .912% which is more than current mean return of Vanguard of 0.57% Using data table we find that if she includes Hasbro into her already existing portfolio, she faces minimum risk when investing 29% in Vanguard and 71 % in Hasbro. Minimum risk is 6.462% and return she gets is 1.007% which is more than current mean return of Vanguard of 0.57% However, since we are assuming her to be extremely risk averse, we think it will be better if she goes for taking Reynolds into current Vanguard portfolio, since risk is more for Hasbro.

Scenario 2
Assuming Alex Sharpe is not risk averse she will go for maximizing risk adjusted return (maximizing Sharpe Ratio): Using Solver, we find that if she includes only Reynolds into her already existing portfolio, she faces maximum Sharpe Ratio = 0.172811609 when investing 36% in Vanguard and 64 % in Reynolds. Risk is 6.48% and return she gets is 1.4% which is more than current mean return of Vanguard of 0.57%. Using Solver, we find that if she includes only Hasbro into her already existing portfolio, she faces maximum Sharpe Ratio = 0.111361953 when investing 29% in Vanguard and 71 % in Hasbro. Risk is .42% and return she gets is 1.01% which is more than current mean return of Vanguard of 0.57%. Since Sharpe ratio is maximum when including only Reynolds into her existing portfolio, we will suggest Alex to include Reynolds into her existing Vanguard portfolio. Scenario 3 If Alex is not too risk averse and want to include both the stocks in portfolio along with short sell. The investment should be done in below mentioned proportion as this is maximum return he can earn at given level of risk. Here RF has been taken as 3.45% long term US treasury bonds and target return is .57% which is the return of Vanguard. MVP van Weig ht 0.8208 2

Ren Has total ER VAR SD SR

0.9684 27 0.8523 95 1 0.0234 89 0.0104 76 0.1023 53 0.2014 02