Consider the Stock Return Data Given Below Develop and Solve the Markowitz Model That Maximizes Expected Return

question 16

Essay

Consider the stock return data given below. $$\begin{array} { | l | c | c | c | c | c | } \hline \text { Stock } & \text { Month 1 } & \text { Month 2 } & \text { Month 3 } & \text { Month 4 } & \text { Month 5 } \\\hline \text { A } & 12.07 & 10.12 & 14.54 & 46.58 & - 19.34 \\\text { B } & 15.95 & 4.16 & 6.31 & - 2.74 & 6.54 \\\text { C } & 30.52 & 16.51 & 34.25 & 45.62 & - 27.21 \\\text { D } & 32.42 & 21.36 & 13.84 & 8.12 & - 6.84\end{array}$$ Develop and solve the Markowitz model that maximizes expected return subject to a maximum variance of 35. Use this model to construct an efficient frontier by varying the maximum allowable variance from 25 to 55 in increments of 5 and solving for the maximum return for each.

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Definitions:

Zajonc's Drive Theory

A psychological theory suggesting the presence of others (an audience) increases arousal, which can enhance the performance of well-learned tasks but impede the performance on complex or new tasks.

Social Facilitation

The phenomenon whereby an individual's performance improves when they are in the presence of others, typically due to increased arousal.

Dominant Response

The reaction or behavior that is most likely to be displayed by an individual in a given situation under pressure or stress.

Aggregate

A collection or sum of many individual parts, units, or individuals considered as a whole in statistics or research.