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2. Explain the numbers in Table 2. Use the set in cells J6 through R6, J10 through R10, J14 through R14 and J18 through R18 as examples. What happens to the allocations for the middle bump level fund as the mug eon approaches?

The values in Table 2 argon the weights of the put on the line-free summation and the take a chancey assets in the optimal feature portfolio for a given keeping design and risk-aversion level. The table alike shows the anticipate reappearance and standard deviation about that outlet for each portfolio.

The third row of results shows that for a one-year holding closure and a middle level of risk aversion, the optimal allocation is 82.2% in the risk-free, 10.4% in T-Bonds, 4.5% in creation Bonds, 1.7% in Large Stocks and 1.2% in Small Stocks. This portfolios expected return is 1.42% and its standard deviation is 1.43%.

Similarly the seventh row of results shows that for a five-year holding period and a middle level of risk aversion, the optimal allocation is 40.2% in the risk-free, 41.4% in T-Bonds, 3.2% in World Bonds, 9.0% in Large Stocks and 6.3% in Small Stocks. This portfolios expected return is 4.71% and its standard deviation is 2.38%.

As the target date approaches the allocation shifts from the spunkyer risk asset classes to the lower risk asset classes to a majority in the risk-free asset.





3. front at the results in Table 1. In general, what is the come in of risk for the four risky asset classes? What happens to the reward-to-risk ratio for the different asset classes as the holding period increases? Is this pattern coherent with the miscellany in the optimal allocations for Small Stocks as the holding period increases (shown in Table 2)? Explain.

In each holding period the risk level of the risky asset classes from low to high is the T-Bonds followed by World Bonds, Large Stocks and then Small Stocks. As the holding period increases, the reward-to-risk ratio improves for all the asset classes. This is consistent with the change in...If you want to get a full essay, order it on our website: Ordercustompaper.com



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