FINANCE 261 Question 1 (10 marks) Janus Capital LLC, a medium sized fund, is considering how to allocate capital between domestic and international stocks. The following details are available Variance co-vuriance matrix Excess returns (r- Domestie stocks (D) 0.04 0.01 0.00 D 0.01 0.09 0.00 0.05 0.04 0,00 stocks (I) Risk free asset (R R 0.00 0.00 0.00 All returns, variances and co-variances are forward-looking (ex-ante) and presented in annual terms. Note: 0.05-5%. What is the correlation between domestic and international stocks? b) Calculate the portolio weights of the tangency (optimal) portfolio of risky assets. c) What is the expected excess returm of the tangency portfolio? d) What is the standard deviation of the tangency portfolio? ) Calculate the Sharpe ratio of the tangency portfolio. a) (1 mark) (4 marks) (I mark) (3 marks) (I mark) Total for Question: 10 marks) Question 2 (10 marks) The table below contains forward-looking (ex-ante) estimates of total returns under two different states of the world, namely Good and Bad. The nominal risk free rate is 2% and the inflation rate is 1%. All returns are presented on an annual basis. Total returns (nominal) State Good Bad Probability IBM 0.6 10% 5% Market 10% 0% 0.4