3. Suppose you are a US investor looking for international diversification opportunities. Your investment advisor offers you an international equity index that expects annual returns of 18%, but the volatility of these returns is 48%. This international index comprises other developed countries as well as some emerging economies. The expected returns, volatility, and correlations are provided below: Risk-Free Rate 3% 0% US equity Index returns (annual) 8% 18% International equity Index returns (annual) 18% 48% Exp. Returns st.dev (volatility) correlation US equity index Correlation International equity index 9 0.4 0 0.4 1 2 3 100 SON 5 6 7 8 US Weight IEI Weight Return 0 1 18.00% 0.1 0.9 17.00% 0.2 0.8 16.00% 0.3 0.7 15.00% 0.4 0.6 14.00% 0.5 0.5 13.00% 0.6 0.4 12.00% 0.7 0.3 11.00% 0.8 0.2 10.00% 0.9 0.1 9.00% 1 0 8.00% ST.DV. Sharpe 48% 0.3125 44% 0.31853675 40% 0.32519192 36% 0.33240207 32% 0.33992609 29% 0.34714689 26% 0.35269231 23% 0.35380501 20% 0.34565815 19% 0.32177804 18% 0.27777778 9 10 11 0 c. Calculate the maximum Sharpe ratio portfolio (only consider the option of investing in equity: international and equity index). (15 points)