Use Excel’s solvetable to solve problems.
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1.
Add a new stock, stock 4, to the model in Example 7.9. Assume that the estimated mean and
standard deviation of return for stock 4 are 0:125 and 0:175, respectively. Also, assume the
correlations between stock 4 and the original 3 stocks are 0:3, 0:5, and 0:8. Run Solver on
the modified model, where the required expected portfolio return is again 0:12. Is stock in the
optimal portfolio? Then run SolverTable as in the example. Is stock 4 in any of the optimal
portfolios on the efficient frontier?
2.
Review Section 8.8 on Clustering Analysis.
The file P08-15.xlsx contains the following information about the top 25 MBA programs (according to the 1997 Business Week Guide): percentage of applicants accepted, percentage of
accepted applicants who enroll, mean GMAT score of enrollees, mean undergraduate GPA of
enrollees, annual cost of school (for state schools, this is the cost for out-of-state students),
percentage of students who are minorities, percentage of students who are non-U.S. residents,
and mean starting salary of graduates (in thousands of dollars). Use these data to divide the
top 25 schools into 4 clusters. Then interpret your clusters.
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