You Have Collected Some Risk and Return Estimates for Various

question 7

Essay

You have collected some risk and return estimates for various market indexes. These indexes are the World stock market index of developed markets, the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) index, and the International Finance Corporation (IFC) Composite index of emerging markets. Here are some risk and return estimates for the future:
$$\begin{array} { l c c } \text { Market } & \text { Return } & \text { Risk } \\\hline \text { Warld } & 10 \% & 16 \% / \\\text { EAFE } & 12 \% & 17 \% \\\text { Camposite } & 15 \% & 25 \%\end{array}$$ All return and risk measures are calculated in U.S. dollars and are expressed in % per year. The correlation matrix is given below:
$$\begin{array} { l c c c } & \text { Warld } & \text { EAFE } & \text { Campasite } \\\hline \text { Warld } & 1.0 & 0.5 & 0.2 \\\text { EAFE } & 0.5 & 1.0 & 0 .1 \\\text { Compasite } & 0.2 & 0.1 & 1.0 \\\hline\end{array}$$ a. Calculate the return and risk of a portfolio invested in the following proportions:
$$\begin{array} { c c c c } \hline \text { Partfalia } & \text { Warld } & \text { EAFE } & \text { Campasite } \\\hline \text { A } & 50 \% & 50 \% &0 \% \\B & 45 \% & 45 \% & 10 \% \\\text { C } & 40 \% & 40 \% & 20 \% \\\hline\end{array}$$ b. Try to derive some estimate of the efficient frontier obtained by using these three indexes
(no short sales are allowed).

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Definitions:

Formal Investment

The act of putting money into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit, typically through an official or regulated framework.

Bootstrapping

Starting a business with minimal financial resources and relying on one's own efforts and funds rather than seeking significant external funding.

Customer Base

The group of customers who repeatedly purchase the goods or services of a business, representing the business's main source of revenue.

Crowdfunding

Securing capital for a project or business by requesting small financial contributions from a large group of individuals, mainly via online channels.