Your portfolio analysis skills have impressed your manager. However, she is concerned about the need to short sell some of the assets in the currently proposed portfolios. Many of the firm’s clients do not like, and some do not allow, short selling in their portfolios. Therefore, your boss wants you to investigate the effect a no-short-sales constraint will have on the MVS without a risk-free asset and any subsequent investment decisions. To do this you are asked to perform the following tasks. Remember to annualize all figures.

3. (a) Construct and plot the risky-asset-only MVS with no short sales allowed for the seven stocks. Recall you will need Solver to do this. (Note: Solver can sometimes give slightly different solutions depending on the initial conditions. If your solution is unexpected try different initial condition values. Marginal differences are acceptable). Plot the MVS for the unconstrained problem—found in 1.(e)—on the same set of axes.

(b) List in a table the portfolio weights for all the data points used in constructing your no-short-sales-allowed graph.

(c) Identify and report the range of expected returns for which the short sales constraint is not binding. Report the range to the nearest whole number.

(d) Determine and tabulate the new portfolio weights for the efficient portfolio with an 11% expected return under the no-short-sales constraint.

(e) Discuss the compositions of the portfolios at the end-points of the MVS with no short sales. Report the weights in a table.

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