145 = 0W + 2(1 – W) W = 0.275 1 – W = 0.725 (WEIGHTS BECOME 0.25...

8.145 = 8.0w + 8.2(1 – w)

w = 0.275

1 – w = 0.725

(weights become 0.25 and 0.75 if return requirement is rounded to 8.15%)

In addition to achieving the return requirement, the appropriate combination of Corner

Portfolios 4 and 5:

• has the highest Sharpe ratio among the efficient portfolios that meet Lourie’s

requirements

• is consistent with Lourie’s specified risk tolerance (less than 15% standard deviation)

• is efficient (lies on efficient frontier)

ii. The most appropriate strategic asset allocation for the Lourie Foundation should be

determined as follows:

Weight (%),

Asset Class Weight (%),

return requirement

return

requirement

= 8.1%

= 8.145%

= 8.15%

U.K. Equities 54.4 = (53.2 + 55.6)/2 54.94 = (53.2)(0.275)