Hi please show full working :) 5. (13 marks) You have information on several pos

Question

Hi please show full working :)

5. (13 marks) You have information on several possible investments as laid out in the table below. A, B, and C are individual risky securities. For now, assume these are the only these 3 risky investments that comprise the market. F is the risk-free asset. M is the market portfolio. All returns are annual returns. Correlation Matrix Investment E(n) A B C F 19.20% 36% | 1.0000 0.7000 0.6000 0.0000 21.90% 12.00% 3.00% 12.00% 0.5 1.0000 0.5000 0.0000 0.6 1.0000 0.0000 0.4 .0000 0.0 1.0 B 35% 2596 0% 10% F Answer the following questions with respect to this investment information:

Explanation / Answer

e) Of the $1 M we are investing ($10M / $1000M)*$1M = $10,000 in asset B

f) F has sigma 0, M has sigma 10. To get a sigma of 4% we need to invest 40% of the capital in M and 60% in F. Therefore 40% of 100,000 is 40,000.

g) average sigma of all the assets is 21.2%. F has a sigma 0. So to get sigma of 8%, market portfolio will have a weight 8/21.2 = 37.73% . Of the $100,000, $37,735 will be in the amrket portfolio, of which each security will have an equal share that is one-fifth. So (1/5)*(37,735) equals $7547.

h)Maximum sharpe ratio is infinite and it is given by F since it has a sigma of zero.

First four sub questions answeredas per chegg policy.

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