3. (Portfolio choices) You are an investment analyst with the Silver V-man Investment Bank's Real Estate Funds Management Department. An important client has asked for the bank's advice on constructing an investment portfolio from three different direct real estate investment asset classes. The client has a total fund of $1 bllion and is considering to invest in property. The potential portfolio asset classes that are presently considered are as follows: Property Asset Class Characteristics Investment Expected Returns Expected Risk Retail Offices Industrial 10% 1596 20% 30% 10% 15% Correlation Matrix Retail Toffice Industrial Retail -3.5 Office Industrial A junior analyst under your supervision proposes the following portfolio weights on the investment of the above three property asset classes: Property Assot Class Proposed Portfolio Weights Retail 10% 50% Industrial 40% (Express your answers in 4 decimal points if necessary) ION (a) Compute the proposed portfolio's expected return and expected risk (8 marks) Assuming short-selling is allowed in the following analysis (to simplify the math) and we use Markowitz Portfolio Choice Model for analysis (b) Suppose that the client wants to minimize the expected risk across these three property classes. How low should this expected risk be and what will be the corresponding expected return and portfolio weights? (10 marks) (c) Characterize the efficient frontier for risky assets and a risk-free asset. Suppose the client can borrow or lend at the risk-free ate of 3%. What should be the tangency portfolio? (10 marks) 3. (Portfolio choices) You are an investment analyst with the Silver V-man Investment Bank's Real Estate Funds Management Department. An important client has asked for the bank's advice on constructing an investment portfolio from three different direct real estate investment asset classes. The client has a total fund of $1 bllion and is considering to invest in property. The potential portfolio asset classes that are presently considered are as follows: Property Asset Class Characteristics Investment Expected Returns Expected Risk Retail Offices Industrial 10% 1596 20% 30% 10% 15% Correlation Matrix Retail Toffice Industrial Retail -3.5 Office Industrial A junior analyst under your supervision proposes the following portfolio weights on the investment of the above three property asset classes: Property Assot Class Proposed Portfolio Weights Retail 10% 50% Industrial 40% (Express your answers in 4 decimal points if necessary) ION (a) Compute the proposed portfolio's expected return and expected risk (8 marks) Assuming short-selling is allowed in the following analysis (to simplify the math) and we use Markowitz Portfolio Choice Model for analysis (b) Suppose that the client wants to minimize the expected risk across these three property classes. How low should this expected risk be and what will be the corresponding expected return and portfolio weights? (10 marks) (c) Characterize the efficient frontier for risky assets and a risk-free asset. Suppose the client can borrow or lend at the risk-free ate of 3%. What should be the tangency portfolio? (10 marks)