a. b. C. d. e. A portfolio is made up of three assets. Asset A has the portfolio weight of 40% and a variance of 0.0256, asset B has the portfolio weight of 20% and a variance of 0.0625, and asset C has a variance of 0.04. The correlation coefficient matrix between three assets is summarized in the following table. Assets A B C A 1 0.6 0.2 B 1 0.5 The expected return of asset A, B and C is 10%, 12% and 15% respectively. Find the portfolio weight of asset C. Show your calculations. [2 marks] Find the expected return on the portfolio. Show your calculations. [3 marks] Calculate the portfolio standard deviation. Show your calculations. your answers to 4 decimal places. Correct [5 marks] Suppose an investor forms a new portfolio to achieve 14% expected return with asset A and C only. Find the standard deviation of the portfolio return. Clearly show your steps and calculations. Correct your answers to 4 decimal places.

[5 marks] Suppose the risk-free rate asset offers 4% return to investors. You decide to form a new portfolio with ONLY ONE risky asset A, B or C and the risk-free asset. Which risky asset would you choose to form the new portfolio? Explain your reasoning. [5 marks]

1. Total 20 marks A portfolio is made up of three assets. Asset A has the portfolio weight of 40% and a variance of 0.0256 , asset B has the portfolio weight of 20% and a variance of 0.0625 , and asset C has a variance of 0.04 . The correlation coefficient matrix between three assets is summarized in the following table. The expected return of asset A, B and C is 10\%, 12\% and 15% respectively. a. Find the portfolio weight of asset C. Show your calculations. [2 marks] b. Find the expected return on the portfolio. Show your calculations. [3 marks] c. Calculate the portfolio standard deviation. Show your calculations. Correct your answers to 4 decimal places. [5 marks] d. Suppose an investor forms a new portfolio to achieve 14% expected return with asset A and C only. Find the standard deviation of the portfolio return. Clearly show your steps and calculations. Correct your answers to 4 decimal places. [5 marks] e. Suppose the risk-free rate asset offers 4% return to investors. You decide to form a new portfolio with ONLY ONE risky asset A, B or C and the risk-free asset. Which risky asset would you choose to form the new portfolio? Explain your reasoning. [5 marks]