Question: Suppose that there are four risky assets whose expected returns E( r ) and variance-covariance matrix ( S ) are shown in the spreadsheet below.

Suppose that there are four risky assets whose expected returns E(r) and variance-covariance matrix (S) are shown in the spreadsheet below. We also consider the portfolio weights of two portfolios x and y of risky assets (see Cells B8:E9):

Suppose that there are four risky assets whose expected returns E(r) and

Write the Excel formula used to estimate the mean and variance of portfolio y in cells E12 and E13, respectively. Explain in detail your answer.

Write the Excel formula used to estimate the correlation of portfolios x and y in cell B15.

Let a portfolio Z which consists of portfolios x and y. The portfolio weight of portfolio x in this new portfolio is 0.3. Estimate portfolios Z mean return, variance, and standard deviation in cells B19, B20, and B21, respectively. Show your calculations in detail.

F G H Mean returns Ec) 7% 9% 11% 20% A BC D E 1 A FOUR-ASSET PORTFOLIO PROBLEM 2 Variance-covariance, S 3 0.10 0.01 0.03 0.05 4 0.01 0.30 0.06 -0.04 5 0.03 0.06 0.40 0.02 6 0.05 -0.04 0.02 0.50 7 8 Portfolio x 0.20 0.30 0.40 0.10 9 Portfolio y 0.20 0.10 0.10 0.60 10 11 Portfolio x and y statistics: Mean, variance, covariance, correlation 12 Mean, Erx) 10.50% Mean, Ery) 15.40% 2 13 Variance 0,2 0.1216 Variance oy 0.2034 14 Covariance(x,y) 0.0714 15 Correlation Pxy 0.4540 ? Question ii 16 17 Calculating returns of combinations of Portfolio x and Portfolio y 18 Proportion of x 0.3 19 Mean portfolio return, Erp) ? 20 Portfolio variance ? ? Question iii 21 Portfolio standard deviation op ? 22 Question i ? ? 2 F G H Mean returns Ec) 7% 9% 11% 20% A BC D E 1 A FOUR-ASSET PORTFOLIO PROBLEM 2 Variance-covariance, S 3 0.10 0.01 0.03 0.05 4 0.01 0.30 0.06 -0.04 5 0.03 0.06 0.40 0.02 6 0.05 -0.04 0.02 0.50 7 8 Portfolio x 0.20 0.30 0.40 0.10 9 Portfolio y 0.20 0.10 0.10 0.60 10 11 Portfolio x and y statistics: Mean, variance, covariance, correlation 12 Mean, Erx) 10.50% Mean, Ery) 15.40% 2 13 Variance 0,2 0.1216 Variance oy 0.2034 14 Covariance(x,y) 0.0714 15 Correlation Pxy 0.4540 ? Question ii 16 17 Calculating returns of combinations of Portfolio x and Portfolio y 18 Proportion of x 0.3 19 Mean portfolio return, Erp) ? 20 Portfolio variance ? ? Question iii 21 Portfolio standard deviation op ? 22 Question i ? ? 2

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