Asset Allocation, example 14

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yellayella

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Can somebody help me how to read the chart on page 285? How do I see that the asset allocation is amost but not exactley surplus efficent???
how do i see the surplus efficient frontier and what does the x-axis mean? isnt that the risk? thanks for your help!!
 
Say you accept risk = 10% std. dev, then draw vertical line starting at 10 on x axis. That gives allocation as 10% EAFE and 90% US LT Govt based on the hatch marks
 
Ok, but on exhibit 32 i dont see that the 60/40 alloaction is not surplus efficient.. I just see it on exhibt 31 right?
from 32 i can only look at the allocations and see that T-bills are not on the chart?$thanks, sorry but this things take me forever and i want to understand.
 
1, Exhibit 31 tells you that 60/40 is not on SEF(surplus EF).
2, Exhibit 32 shows you the weights, which can’t be shown in Exhibit 31.
3, The x-axis in Exhibit 32 is 0-100, which is rescaled from 0-23% or so (standard deviation) in Exhibit 31.
Basically, it’s saying that T-Bill has no place on the efficient frontier.
 
it’s numbering difference from 2011 exam I think. Exhibit 34 of 2015 = 32 of 2011 from what I read the answer.
 
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