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:
Download the most recent three years weekly
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:
1. 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.
2. Draw the opportunity set offered by these two
3. What is the optimal portfolio of CBO
and XIU? What are the expected return and standard deviation of this portfolio?
4. Choose your degree of risk aversion with a
range of the A value from 1 to 8.
5. 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?
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