Question 6 You are in a world where there are only two assets, gold and stocks. You are interested in investing your money in one, the other, or both, so you collect the following data on the returns on the two assets over the last six years: Gold Stock Market Average Return 8% 20% Standard Deviation 25% 22% Correlation -0 .4 a. If you were constrained to pick just one asset, which one would you choose and why? b. Explain the reasons why an investor could be better off by holding a portfolio of both assets instead of a single asset. c. You now learn that GPEC (a cartel of gold producing countries) is going to vary the amount of gold it produces with stock prices in the US. (GPEC will produce less gold when stock markets are up and more when they are down). Explain what effect this will have on your portfolio. d. Compute the expected return, variance a stande deviation for the 50-50 portfolio and a portfolio that invests 20% in Gold and 80% in the Stock Market. Which of the two portfolios offers the higher Sharpe ratio, assuming a risk-free rate of 4%