3. You have the choice of investing in four assets. The expected returns, volatility of returns and correlation coefficients of retums are listed in the table below: Volatility (%) Stocks T-Bills Asset Class Stocks Bonds Real Estate T.Bills Return (%) 22 0.9 9 30 12 6 1.00 0.01 -0.19 -0.02 CORRELATION MATRIX Bonds Real Estate 0.01 -0.19 1.00 -0.09 -0.09 1.00 -0.63 0.5 -0.02 -0.63 0.5 1.00 0.1 0 PLEASE TURN OVER a) Calculate: (1) The expected return for a portfolio (named Portfolio A) which is equally weighted and for a portfolio (called Portfolio B) that has 70% holdings in stocks; 10% in real estate with an equal spread allocated to the fixed income assets. (6 MARKS) (ii) The variance of returns for Portfolio A and Portfolio B. (6 MARKS) (iii) The standard deviation of returns for both portfolios. (2 MARKS) (iv) What tools can an investor use to assess which of the two portfolios is optimal? Why? (6 MARKS) b) Comment on the scale of risk reduction between the two portfolios. What would you say is the signifi- cant reason why volatility is reduced? (6 MARKS)