Question 4. Using the covariance matrix, yearly mean returns, and risk-free rate from Question 3 to answer the following.

Use Solver in Excel to find 12 portfolios (each portfolio is a set of weights with a given return and volatility) on the mean-variance frontier. Start with a target return of 7.5% and then go up to 24.0% with 1.5% increment (the portfolios created should have returns equal to 7.5%, 9%, 10.5%, 12%, 13.5%, and so on. Assume the order of stocks to be NKE, NOC, WBA, and WFC. There should be 48 weights for the 12 portfolios.). (16)

Draw efficient frontier (x-axis is volatility and y-axis is return) using the return and volatility for the portfolios found in part A. Feel free to add more points if the shape of the efficient frontier does not look right with the points found in part A. (5)

Find the optimal portfolio (i.e., the weights of the 4 assets in the optimal portfolio) by maximizing the Sharpe ratio of all feasible portfolios. (Assume the order of stocks to be NKE, NOC, WBA, and WFC. There should be 4 weights for this.) (4)

If the goal is to earn an annual return of 15%, how should the optimal portoflio be combined with the risk-free asset? (State what should be the weights to the optimal portfolio and the risk-free asset) (5)