For the questions, use the following averages and covariance matrix. PLEASE HELP

Question

For the questions, use the following averages and covariance matrix. PLEASE HELP ASAP! ROUND to 2 decimal places

EQUATION NEEDED FOR 8)=

Sharpe ratio for the portfolio = (Return on the portfolio-Risk Free Rate/standard deviation of the portfolio
Averages

covariance matrix

5.) Calculate the average of a portfolio formed by 35% in asset 1 and 65% in asset 2.

6.) Calculate the variance of a portfolio formed by 35% in asset 1 and 65% in asset 2.

7.) Using the variance from question 6, calculate the standard deviation for the portfolio formed by 35% in asset 1 and 65% in asset 2.

8.) Using the average and standard deviation from previous questions, calculate the Sharpe ratio for the portfolio formed by 35% in asset 1 and 65% in asset 2.

9.) Which of the portfolios offer greater return per unit of risk taken?

a. The portfolio formed by 30% in asset 2 and 70% in asset 3
b. The portfolio formed by 35% in asset 1 and 65% in asset 2
c. Both give the same return per unit of risk

Explanation / Answer

5.
Average of portfolio = .35*Return on asset 1 + .65*Return on asset 2
=.35*.25+.65*.12
=0.1655
= 0.17 (Round to two decimal places)

6.
Variance of portfolio = p2 = w1212 + w2222 + 2w1w2 Covariance(1,2)
where w1 is weight of asset 1 = 0.35,
w2 is weight of asset 2 = 0.65,
1 is variance of asset 1 = 0.4,
2 is variance of asset 2 = 0.7,
Covariance(1,2) is covariance between asset 1 and asset 2 = -0.1

Putting all the values we get p2  = 0.3
Hence variance of the portfolio is 0.3

7. Standard deviation is square root of variance = sqrt(0.3)
= 0.547
= 0.55 (Round to two decimal places)

8. Sharpe Ratio = (return of portfolio- Riskfree rate)/ standard deviation of the portfolio
We need risk free rate for Sharpe Ratio, since it is not mentioned in the question,Lets assume risk free rate to be x(in decimal format).

Sharpe Ratio = (0.17 - x)/ 0.55

9. Return per unit of risk = Return/ variance
a. return = 0.3*12 +0.7*0.08 = 0.092
   Variance = w2222 + w3232 + 2w2w3 Covariance(2,3) = 0.63
   Return per unit risk = 0.092/0.63 = 0.146
b. Return ( calculated above) = 0.165
   Variance (calculated above) = 0.3
   Return per unit of Risk = 0.165/0.3 = 0.55

Hence (b) portfolio formed by 35% in asset 1 and 65% in asset 2 offer greater return per unit of risk taken.

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