August 2, 2019 Time: 9:30 a.m. - 12:30 p.m. 5. You are an investment analyst with the Silver V-man Investment Bank's Real Estate Funds Management Department. An important client has asked for the bank's advice on constructing an investment portfolio from three different direct real estate investment asset classes. The client has a total fund of US$1 billion and is considering investing in property. The proposed portfolio being considered are as follows: Table 5.1: Property Asset Class Characteristics Investment Expected Returns Expected Risk (o;) Proposed Portfolio Weights Retail 20% 20% 20% Offices 30% 10% 30% Industrial 10% 20% 10% Table 5.2: Correlation Matrix Retail Office Industrial Retail 1 0.2 0 Office 0.2 1 0 Industrial 0 0 1 (Express your answers in 4 decimal points if necessary) (a) Compute the proposed portfolio's expected return and expected risk. (6 marks) For simplicity, assuming that short-selling is allowed and the Markowitz Portfolio Choice Model is used for analysis. (b) Suppose that the client wants to minimize the expected risk across these three property classes. How low can this expected risk be? What will be the corresponding expected return and portfolio weights? (6 marks) (c) Suppose the client can borrow or lend at the risk-free rate of 3%. What should be the tangency portfolio? (5 marks) (d) Does the proposed portfolio weights lie on efficient frontier among risky assets? (8 marks)