2.2 Exercise 2: Portfolio Return and Variance The expected return () of 4 assets is given by the following vector: u = [M1 M2 M3 M4]' = [0.07 0.10 0.06 0.05)' Their variance-covariance matrix is the following: o oil os o o o os ou 031 032 o 34 g v gia , 0.06 0.05 0.02 -0.01 0.05 0.08 0.04 -0.02 0.02 0.04 0.02 -0.01 |-0.01 -0.02 -0.01 0.02 2.2.1 Portfolio Compute the expected return and variance of the portfolios weighted as the following, with w = [wi w2 W3 wal': w = [0.25 0.25 0.25 0.25]' (1) w = [0.5 0.1 0.3 0.1]' (2) w = [0.3 0.5 0.1 0.1]' (3) w = [0.1 0.3 0.5 0.0)' (4) w = [0.1 0.1 0.3 0.5]' (5) 2.2.2 Investor Preference Assuming the investor is risk averse (and profit maximizer). Which portfolio would she prefer among the 5 alternatives (1 - 5)? Comparing portfolios (1), portfolio (2) and portfolio (3), rank the preference of this investor. 2.2 Exercise 2: Portfolio Return and Variance The expected return () of 4 assets is given by the following vector: u = [M1 M2 M3 M4]' = [0.07 0.10 0.06 0.05)' Their variance-covariance matrix is the following: o oil os o o o os ou 031 032 o 34 g v gia , 0.06 0.05 0.02 -0.01 0.05 0.08 0.04 -0.02 0.02 0.04 0.02 -0.01 |-0.01 -0.02 -0.01 0.02 2.2.1 Portfolio Compute the expected return and variance of the portfolios weighted as the following, with w = [wi w2 W3 wal': w = [0.25 0.25 0.25 0.25]' (1) w = [0.5 0.1 0.3 0.1]' (2) w = [0.3 0.5 0.1 0.1]' (3) w = [0.1 0.3 0.5 0.0)' (4) w = [0.1 0.1 0.3 0.5]' (5) 2.2.2 Investor Preference Assuming the investor is risk averse (and profit maximizer). Which portfolio would she prefer among the 5 alternatives (1 - 5)? Comparing portfolios (1), portfolio (2) and portfolio (3), rank the preference of this investor