Portfolio
• Using the historical mean as the expected return, use the portfolio optimisation procedure in the Excel sheet to determine the portfolio weights of the optimal risky portfolio and the optimal complete portfolio. Select your own estimate of risk aversion for the individual stating what would happen if risk aversion changes (either up or down) from your own initial estimate. (You are given the chance to select a level of risk aversion, in part, to ensure you have flexibility over the diagram demonstrating the optimal complete portfolio and optimal risky portfolio.)
• Imagine you are doing security analysis on some of the stocks, what happens when you change the expected return? Select a security (or securities) of your choice and analyse the results.
• Compare the portfolio weights for both the optimal risky portfolio and the optimal complete portfolio using the portfolio optimisation procedure in the Excel sheet for the three methods to forecast expected returns, a), historical, b) static CAPM, and c) Fama-French 3 factor. Offer an interpretation of your findings.
