W1

W2
W3
Portfolio SDExpected Return
-0.4482
0.5702
0.8780
0.314
0.50
-0.3474
0.5194
0.8280
0.285
0.48
-0.2467
0.4687
0.7780
0.259
0.46
-0.1459
0.4179
0.7280
0.236
0.44
-0.0452
0.3672
0.6780
0.219
0.42
0.0556
0.3164
0.6280
0.207
0.40
0.1563
0.2657
0.5780
0.203
0.38
0.2571
0.2149
0.5280
0.206
0.36
0.3578
0.1641
0.4780
0.216
0.34
0.4586
0.1134
0.4280
0.233
0.32
0.5593
0.0626
0.3780
0.254
0.30
0.6601
0.0119
0.3280
0.280
0.28
0.7608 -0.0389
0.2780
0.308
0.26
0.8616 -0.0896
0.2281
0.339
0.24
0.9623 -0.1404
0.1781
0.371
0.22
0.0631 -0.1911
0.1281
0.405
0.20

0.60
0.50
0.40
0.30
0.20
0.10
0.00
0.000

0.050

0.100

0.150

0.150

0.200

0.250

0.300

0.350

0.400

0.450

Microsoft Excel 12.0 Answer Report

Worksheet: [Markov's Trilemma - TN.xlsx]Sheet1
Report Created: 11/27/2008 4:06:48 PM

Target Cell (Max)

Cell
Name
$E$79 AOL Weight

Original Value Final Value

10%
100%

Adjustable Cells
Cell
Name
$E$78 INTC Weight
$E$79 AOL Weight
$E$80 IBM Weight
$E$81 GM Weight
$E$82 AA Weight
$E$83 GE Weight
$E$84 IP Weight
$E$85 MRK Weight

Original Value Final Value

10%
0%
10%
100%
10%
0%
10%
0%
10%
0%
10%
0%
20%
0%
20%
0%

Constraints
Cell
Name
$E$86 Weight
$E$78 INTC Weight
$E$79 AOL Weight
$E$80 IBM Weight
$E$81 GM Weight
$E$82 AA Weight
$E$83 GE Weight
$E$84 IP Weight
$E$85 MRK Weight

Cell Value
100%
0%
100%
0%
0%
0%
0%
0%
0%

Formula
$E$86=1
$E$78>=0
$E$79>=0
$E$80>=0
$E$81>=0
$E$82>=0
$E$83>=0
$E$84>=0
$E$85>=0

Status
Not Binding
Binding
Not Binding
Binding
Binding
Binding
Binding
Binding
Binding

Slack
0
0%
100%
0%
0%
0%
0%
0%
0%

Microsoft Excel 12.0 Sensitivity Report

Worksheet: [Markov's Trilemma - TN.xlsx]Sheet1
Report Created: 11/27/2008 4:06:48 PM

Adjustable Cells
Cell
$E$78
$E$79
$E$80
$E$81
$E$82
$E$83
$E$84
$E$85

Name
INTC Weight
AOL Weight
IBM Weight
GM Weight
AA Weight
GE Weight
IP Weight
MRK Weight

Final Reduced
Value Gradient
0%
-100%
100%
0%
0%
-100%
0%
-100%
0%
-100%
0%
-100%
0%
-100%
0%
-100%

Constraints
Cell
Name
$E$86 Weight

Final Lagrange
Value Multiplier
100%
100%

Microsoft Excel 12.0 Limits Report

Worksheet: [Markov's Trilemma - TN.xlsx]Limits Report 1
Report Created: 11/27/2008 4:06:49 PM

Target
Cell
Name
$E$79 AOL Weight

Cell
$E$78
$E$79
$E$80
$E$81
$E$82
$E$83
$E$84
$E$85

Adjustable
Name
INTC Weight
AOL Weight
IBM Weight
GM Weight
AA Weight
GE Weight
IP Weight
MRK Weight

Value
100%

Value
0%
100%
0%
0%
0%
0%
0%
0%

Lower Target
Limit Result
0% 100%
100% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%

Upper Target
Limit Result
0% 100%
100% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%
0% 100%

INTC

AOL

Dec-97
Jan-98
Feb-98
Mar-98
Apr-98
May-98
Jun-98
Jul-98
Aug-98
Sep-98
Oct-98
Nov-98
Dec-98

35.05
40.41
44.75
38.95
40.32
35.64
36.98
42.13
35.52
42.78
44.50
53.72
59.18

5.66
5.98
7.59
8.54
9.99
10.41
13.14
14.64
10.24
13.95
15.92
21.89
38.78

RETURNS

68.8%

585.6%

IBM
GM
51.99
49.07
51.89
51.61
57.58
58.38
57.05
65.84
55.96
63.85
73.79
82.17
91.75
76.5%

47.51
45.31
54.34
53.40
53.11
57.06
53.04
57.40
46.47
43.87
50.51
56.28
57.64
21.3%

AA
GE
IP
MRK
34.15
71.46
41.38
51.40
37.06
75.47
43.84
56.91
35.78
75.72
44.97
61.85
33.56
84.27
45.21
62.38
37.79
83.29
50.34
58.63
33.94
81.52
44.58
56.93
32.26
88.85
41.68
65.34
33.91
87.73
43.25
60.36
29.41
78.47
36.07
56.64
34.87
78.33
45.45
63.57
38.92
86.14
45.27
66.27
36.58
88.97
42.58
76.12
36.74 100.77
43.93
72.62
7.6%

41.0%

6.2%

INTC

41.3% Sd
AnnualisedSD
GeometricMean

AOL
15.29%
10.74%
-12.96%
3.52%
-11.61%
3.76%
13.93%
-15.69%
20.44%
4.02%
20.72%
10.16%
5.19%
12.65%

SD
0.43835
0.87745
0.33682
0.37623
0.34873
0.24
0.38275
0.30134

INTC
AOL
IBM
GM
AA
GE
IP
MRK
0.4383 0.87744539 0.3368 0.3762 0.3487
0.24
0.382750252
0.301336048
1.00
0.59
0.61
0.36
0.60
0.20
0.62
0.52
0.59
1.00
0.62
0.36
0.27
0.64
0.43
0.25
0.61
0.62
1.00
0.65
0.62
0.29
0.58
0.00
0.36
0.36
0.65
1.00
0.10
0.26
0.07
0.12
0.60
0.27
0.62
0.10
1.00
0.17
0.88
0.13
0.20
0.64
0.29
0.26
0.17
1.00
0.16
0.30
0.62
0.43
0.58
0.07
0.88
0.16
1.00
0.19
0.52
0.25
0.00
0.12
0.13
0.30
0.19
1

INTC

INTC
AOL
IBM
GM
AA
GE
IP
MRK
0.1922 0.22596566 0.0899 0.0586 0.0913 0.0207
0.103330696
0.068734565

Covarinace Matrix

-0.056
0.0575
-0.005
0.1157
0.0139
-0.023
0.1541
-0.15
0.141
0.1557
0.1136
0.1166
5.28%
9.72%

0.438349848 0.87745 0.3368

0.688445078 5.85159 0.7648

Correlation

INTC
AOL
IBM
GM
AA
GE
IP
MRK

0.05654
0.26923
0.12516
0.16979
0.04204
0.26225
0.11416
-0.3005
0.3623
0.14122
0.375
0.77159
19.91%
25.33%

IBM

AOL
IBM
GM
AA
GE
IP
MRK

0.226
0.0899
0.0586
0.0913
0.0207
0.1033
0.0687

0.76991041
0.18333833
0.12009992
0.08363793
0.13386423
0.14574141
0.06592451

0.1833
0.1134
0.082
0.0729
0.0233
0.0745
0.0005

0.1201
0.082
0.1415
0.0138
0.0233
0.0094
0.0135

0.0836
0.0729
0.0138
0.1216
0.0143
0.1169
0.0134

INTC
AOL
IBM
GM
AA
GE
IP
MRK
SUM

######
INTC
1E+12
-1E+12
3E+11
-9E+10
-1E+12
2E+11
1E+12
-5E+11
######

232764147%
AOL
-1.4633E+12
4.1713E+12
-4.552E+11
1.5888E+11
1.082E+12
-1.0813E+12
-1.2497E+12
3.9113E+11
###########

######
IBM
3E+11
-5E+11
1E+11
-5E+10
-4E+11
9E+10
3E+11
-1E+09
######

######
GM
-9E+10
2E+11
-5E+10
5E+10
4E+10
-5E+10
-2E+10
2E+10
######

######
AA
-1E+12
1E+12
-4E+11
4E+10
4E+12
-3E+11
-2E+12
2E+11
######

######
-368386787%
254890915%
GE
IP
MRK
2E+11
1.05906E+12
-4.87435E+11 -4E+11
-1E+12 -1.24969E+12
3.91127E+11 1.6E+12
9E+10
2.92637E+11
-1344745858 -2E+11
-5E+10 -19615843028
19613035369
6E+10
-3E+11 -2.39409E+12
1.90069E+11 5.6E+11
7E+11
1.92996E+11
-1.92358E+11 -4E+11
2E+11
1.9881E+12
-2.06968E+11 -3E+11
-2E+11 -2.06968E+11
5.89944E+11
3E+11
###### ############# ############## #######

AOL

IBM

GM

AA

GE

IP

Weight_Covariance
##########
##########
##########
56833004%
##########
##########
##########
##########

Variance
SD

0.1339
0.0233
0.0233
0.0143
0.0576
0.0151
0.0217

0.145741408
0.074472563
0.009369196
0.116927916
0.015097232
0.146497755
0.022041715

#######
1052936
INTC
15.29%
10.74%
-12.96%
3.52%
-11.61%
3.76%
13.93%

0.0565
0.2692
0.1252
0.1698
0.042
0.2622
0.1142

-0.05616465
0.05746892
-0.00539603
0.11567526
0.01389371
-0.02278177
0.15407537

-0.0463
0.1993
-0.0173
-0.0054
0.0744
-0.0705
0.0822

0.0852
-0.0345
-0.062
0.126
-0.1019
-0.0495
0.0511

0.0561
0.0033
0.1129
-0.0116
-0.0213
0.0899
-0.0126

0.0594
0.0258
0.0053
0.1135
-0.1144
-0.0651
0.0377

MRK
0.107198444
0.086803725
0.008569119
-0.060115422
-0.028995395
0.147725277
-0.076216713

0.06592451
0.000494603
0.013539101
0.013416477
0.021747476
0.022041715
0.090803414

-15.69%
20.44%
4.02%
20.72%
10.16%
Return

Portfolio
INTC
AOL
IBM
GM
AA
GE
IP
MRK

-0.3005
0.3623
0.1412
0.375
0.7716

68.8% 585.6%

Return
68.8%
585.6%
76.5%
21.3%
7.6%
41.0%
6.2%
41.3%

Sd
2.3833
20.286
2.65
0.7379
0.2633
1.4203
0.2148
1.4307

-0.15006075 -0.1904 -0.1327 -0.1056 -0.166

0.14099357 -0.056 0.1857 -0.0018
0.26
0.15567737 0.1514 0.1161 0.0997 -0.004
0.11356552 0.1142 -0.0601 0.0329 -0.0594
0.11658756 0.0242 0.0044 0.1326 0.0317
76.5%

21.3%

Weight
###########
232764147%
###########
56833004%
555798702%
###########
###########
254890915%
1

WxR
-2E+06
1E+07
-816000
121054
422407
-1E+06
-228400
1E+06

Portfolio Return

1E+07

PortfolioSD

1E+06

Return/Risk

10.3

7.6%

41.0%

6.2%

-0.061630219
0.122351695
0.042472865
0.148634375
-0.045980032
41.3%

Weight
Implied Return

12%
0.10976
0.19215
0.22597
0.08993
0.05858
0.09128
0.02075
0.10333
0.06873

15%
0.2319
0.226
0.7699
0.1833
0.1201
0.0836
0.1339
0.1457
0.0659

GM

AA

GE

IP

MRK

INTC

AOL

0.1072
0.0868
0.0086
-0.06
-0.029
0.1477
-0.076
-0.062
0.1224
0.0425
0.1486
-0.046
3.26%
8.70%

0.000%
5.7%
26.9%
12.5%
17.0%
4.2%
26.2%
11.4%
-30.1%
36.2%
14.1%
37.5%
77.2%
19.91%
25.33%

0.376227 0.3487
0.24 0.3828 0.3013
0.213218 0.0758 0.4102 0.0616 0.4128

0.877445
585.159%

-0.04631
0.199294
-0.0173
-0.00543
0.074374
-0.07045
0.082202
-0.19042
-0.05595
0.151356
0.114235
0.024165
2.16%
10.86%

0.0852
-0.035
-0.062
0.126
-0.102
-0.049
0.0511
-0.133
0.1857
0.1161
-0.06
0.0044
1.06%
10.07%

0.0561
0.0033
0.1129
-0.012
-0.021
0.0899
-0.013
-0.106
-0.002
0.0997
0.0329
0.1326
3.12%
6.93%

0.0594
0.0258
0.0053
0.1135
-0.114
-0.065
0.0377
-0.166
0.26
-0.004
-0.059
0.0317
1.04%
11.05%

IBM
100.000%

0.000%

0.008610891

0.00572788

6.589116757

0.016013 0.0188 0.0075 0.0049 0.0076

0.001729156

0.01883
0.007494
0.004882
0.007606
0.001729
0.008611
0.005728

0.0642
0.0153
0.01
0.007
0.0112
0.0121
0.0055

0.0153
0.0095
0.0068
0.0061
0.0019
0.0062
4E-05

0.01
0.0068
0.0118
0.0011
0.0019
0.0008
0.0011

0.007
0.0061
0.0011
0.0101
0.0012
0.0097
0.0011

0.011155353
0.001938491
0.001941645
0.00119427
0.004800047
0.001258103
0.00181229

0.012145117
0.006206047
0.000780766
0.009743993
0.001258103
0.012208146
0.00183681

0.005493709
4.1217E-05
0.001128258
0.00111804
0.00181229
0.00183681
0.007566951

12%
0.082934
0.089932
0.183338
0.113448
0.081979
0.07292
0.023262
0.074473
0.000495

12%
0.0596
0.0586
0.1201
0.082
0.1415
0.0138
0.0233
0.0094
0.0135

12%
0.0665
0.0913
0.0836
0.0729
0.0138
0.1216
0.0143
0.1169
0.0134

12%
0.0415
0.0207
0.1339
0.0233
0.0233
0.0143
0.0576
0.0151
0.0217

12%
0.0811
0.1033
0.1457
0.0745
0.0094
0.1169
0.0151
0.1465
0.022

12%
0.037911641
0.068734565
0.06592451
0.000494603
0.013539101
0.013416477
0.021747476
0.022041715
0.090803414

GM

AA
0%

GE
0%

IP
0%

MRK
0%

0%

100.000%

Demonstration of the Portfolio Standard Deviation Calculation

RiskFreeRate
equal risk return - changing correlation

Er1
0.213
Esd1
0.376
Er2
0.413
Esd2
0.301
Er3
0.41
Esd3
0.24
W1
-0.008 W2
0.348443 W3
Expected Return
0.412622
Correlation12 0.12
Correlation23 0.30
Correlation13 0.26
Covar_12_23_13
0.0136
0.0217
0.0235
Portfolio SD
0.214
Sharpe Ratio 1.603

0.659561

0.07

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

equal risk return - changing correlation

Er1
Esd1
Er2
Esd2
Er3
Esd3
W1
Expected Return
Correlation12
Correlation23
Correlation13
Covar_12_23_13
Portfolio SD
Sharpe Ratio

0.213
0.376
0.413
0.301
0.688
0.438
-0.05704 W2
0.431444 W3
0.596449
0.12
0.52
0.35
0.0136
0.0686
0.0576
0.353

1.491

RiskFreeRate

0.625601

0.07

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

RiskFreeRate
equal risk return - changing correlation

Er1
0.213
Esd1
0.376
Er2
0.413
Esd2
0.301
Er3
0.41
Esd3
0.3
W1
0.023592 W2
0.492837 W3
Expected Return
0.406831
Correlation12 0.12
Correlation23
0.3
Correlation13 0.26
Covar_12_23_13
0.0136
0.0271
0.0293
Portfolio SD
0.239
Sharpe Ratio 1.410

0.48357

0.07

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

RiskFreeRate
equal risk return - changing correlation

Er1
0.213
Esd1
0.376
Er2
0.413
Esd2
0.301
Er3
0.3
Esd3
0.24
W1
0.052848 W2
0.493583 W3
Expected Return
0.351177
Correlation12 0.12
Correlation23
0.3
Correlation13 0.26
Covar_12_23_13
0.0136
0.0217
0.0235
Portfolio SD
0.214
Sharpe Ratio 1.313
0.141376

0.453568

0.07

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

RiskFreeRate
equal risk return - changing correlation

Er1
0.213
Esd1
0.376
Er2
0.413
Esd2
0.301
Er3
0.41
Esd3
0.24
W1
0.003085 W2
0.345454 W3
Expected Return
0.410428
Correlation12 0.12
Correlation23
0.3
Correlation13 0.26
Covar_12_23_13
0.0136
0.0217
0.0235
Portfolio SD
0.212
Sharpe Ratio 1.696

0.65146

0.05

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

RiskFreeRate
equal risk return - changing correlation

Er1
0.213
Esd1
0.376
Er2
0.413
Esd2
0.301
Er3
0.41
Esd3
0.24
W1
0.359557 W2
Expected Return 0.339167
Correlation12
0.12
Correlation23
0.30
Correlation13
-0.8
Covar_12_23_13 0.0136
0.0217
Portfolio SD
0.093
Sharpe Ratio
2.893

0 W3

-0.0722

0.640442

0.07

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

RiskFreeRate
equal risk return - changing correlation

Er1
0.213
Esd1
0.376
Er2
0.413
Esd2
0.301
Er3
0.41
Esd3
0.24
W1
0 W2
0.346437 W3
Expected Return
0.411039
Correlation12 0.12
Correlation23 0.30
Correlation13
0.8
Covar_12_23_13
0.0136
0.0217
0.0722
Portfolio SD
0.213
Sharpe Ratio 1.602

0.653562

0.07

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

RiskFreeRate
equal risk return - changing correlation

Er1
0.213
Esd1
0.376
Er2
0.413
Esd2
0.301
Er3
0.41
Esd3
0.24
W1
0.052357 W2
0.447643 W3
Expected Return
0.401029
Correlation12 0.12
Correlation23
0.3
Correlation13 0.26
Covar_12_23_13
0.0136
0.0217
0.0235
Portfolio SD
0.211
Sharpe Ratio 1.569

0.5

0.07

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

RiskFreeRate
equal risk return - changing correlation

Er1
0.213
Esd1
0.376
Er2
0.413
Esd2
0.301
Er3
0.41
Esd3
0.24
W1
0 W2
0.346437 W3
Expected Return
0.411039
Correlation12 0.12
Correlation23
0.3
Correlation13 0.26
Covar_12_23_13
0.0136
0.0217
0.0235
Portfolio SD
0.213
Sharpe Ratio 1.602

0.653562

0.07

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

equal risk return - changing correlation

Er1
Esd1
Er2
Esd2
Er3
Esd3
W1
Expected Return
Correlation12
Correlation23
Correlation13
Covar_12_23_13
Portfolio SD
Sharpe Ratio

0.213
0.376
0.413
0.301
0.41
0.24
0.408901789 W2
-0.13116 W3
0.329052881
0.12
0.3
-0.8
0.0136
0.0217 -0.0722
0.084

3.087

RiskFreeRate

0.722254

0.07

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

RiskFreeRate
equal risk return - changing correlation

Er1
0.213
Esd1
0.376
Er2
0.413
Esd2
0.301
Er3
0.41
Esd3
0.24
W1
0.541535 W2
Expected Return 0.303317
Correlation12
0.12
Correlation23
0.30
Correlation13
-0.8
Covar_12_23_13
0.0136
0.0217
Portfolio SD
0.000
Sharpe Ratio
1240.111

0 W3

-0.0722

0.458464

0.07

1.00000

Demonstration of the Portfolio Standard Deviation Calculation

equal risk return - changing correlation

Er1
Esd1
Er2
Esd2
Er3
Esd3
W1
Expected Return
Correlation12
Correlation23
Correlation13
Covar_12_23_13
Portfolio SD
Sharpe Ratio

0.213
0.376
0.413
0.301
0.41
0.24
-0.61359992 W2
0.213351 W3
0.53151924
0.12
0.3
0.8
0.0136
0.0217
0.0722

RiskFreeRate

1.400249

0.07

1.00000

0.236

1.957

When shorti

Demonstration of the Portfolio Standard Deviation Calculation

equal risk return - changing correlation

Er1
Esd1
Er2
Esd2
Er3
Esd3
W1
Expected Return
Correlation12
Correlation23
Correlation13
Covar_12_23_13
Portfolio SD
Sharpe Ratio

0.213
0.376
0.413
0.301
0.41
0.24
0 W2
0.413
0.12
0.3
0.8
0.0136
0.0217
0.232

1.479

When shorting is not allowed

1 W3

0.0722

RiskFreeRate

0.07

1.00000

3 Asset Allocation Model

Expecte
d
Standard
Return Deviation
33.0% 21.3%
37.6%
34.0% 41.3%
30.1%
33.0% 41.0%
24.0%
100.0%

Weighting
Asset
GM
MRK
GE

7%
34.6%
21.3%
1.30

Sharpe
Ratios
0.38
1.14
1.42

Risk-free rate
Expected Return
Expected standard deviation
Sharpe Ratio

Correlation Coefficient with:

GM
MRK
GE
1.00
0.12
0.26
0.12
1.00
0.30
0.26
0.30
1.00

Demonstration of the Portfolio Standard Deviation Calculation

equal risk return - changing correlation

GM
Esd1
MRK
Esd2
GE
Esd3
GM
Expected Return
Correlation12
Correlation23
Correlation13
Covar_12_23_13
Portfolio SD
Sharpe Ratio

0.213
0.376
0.413
0.301
0.41
0.24
0.33
0.34598
0.12
0.30
0.26
0.0136

RiskFreeRate

0.07

0.566489
1.372093
1.708333
MRK

0.0217

0.33 GE

0.34

1.00000

0.0235

0.21215

1.301

Maximising Sharpe Ratio

Demonstration of the Portfolio Standard Deviation Calculation
equal risk return - changing correlation

Er1
Esd1
Er2
Esd2
Er3
Esd3
W1
Expected Return
Correlation12
Correlation23
Correlation13
Covar_12_23_13
Portfolio SD
Sharpe Ratio

0.213
0.376
0.413
0.301
0.41
0.24
0.04
0.422847088
0.12
0.30
0.26
0.0136
0.219

1.613

RiskFreeRate

0.07

0.566489
1.372093
1.708333
W2
0.348443 W3

0.0217

0.0235

0.659561

10
20
10
20
10
20
10
-1

1.04800
-10
10
-10
10
-10
10
-10
10
-10
-1

20
10
20
10
20
10
20

10
-10
10
-10
10
-10
10
-10
10