Identify the corner portfolio most likely to be tangency


You are evaluating UALR endowment portfolio and considering making recommendation for policy portfolio. The portfolio has current market value of $90 million. Considering the conservative nature of its trustees, the risk tolerance of the portfolio is identified as average with a conservative spending rate of 4%. The return objective is set at 7.5%%. The measured risk aversion for UALR is R(A) = 4. The portfolio has the capacity to accept standard deviation of 12% or less. The two tables below provides client's capital market expectations and the corner portfolios.

a) Based on Mean-Variance analysis, determine the strategic asset allocation that is most appropriate for UALR. Justify your answer.

b) Identify the corner portfolio most likely to be the tangency portfolio and explain its appropriateness for UALR in selecting an optimal strategic asset allocation.

c) Determine the most appropriate asset allocation for UALR given its measured risk aversion and the return objective if UALR had to choose only one portfolio from the eight corner portfolio.

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Financial Management: Identify the corner portfolio most likely to be tangency
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