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).

---

Definitions:

Red Bell Peppers

A cultivar of the species Capsicum annuum, noted for its sweet taste and vibrant red color, commonly used in cooking and salads.

Imported

Goods or services brought into one country from another, subject to trade regulations and possibly tariffs.

Price

The amount of money or its equivalent required to purchase a product, service, or asset.

Macaroni Salad

A type of salad typically made from cooked macaroni pasta and a variety of other ingredients, mixed in a mayonnaise-based dressing.