Assume the following information

Asset i	E(ri)	i	Correlation Coefficient
1	0.05	0.20	1 with 2 =	-0.2
2	0.10	0.30	1 with 3 =	0
3	0.20	0.10	1 with 4 =	0.5
4	0.15	0.15	2 with 3 =	0.2
			2 with 4 =	-0.5
			3 with 4 =	0.4

A portfolio is formed as follows: buy $5,000 of asset 1 and ?$4,000 of asset 2, short sell $2,000 of asset 3 and buy $6,000 of asset 4. The cash provided by the owner of the portfolio is $2,000, and any additional funds required to finance the portfolio are borrowed at a risk-free interest rate of 5%. There are no restrictions on the use of short sale proceeds.

In other words, the rate of the return of the portfolio can be expressed as

r = w₀ r_f + w₁ r₁ + w₂ r₂ + w₃ r₃ + w₄ r₄

where r_f is the risk-free rate.

Find the covariance matrix of the four risky assets. (Keep your answer to 4 decimal places)

Covariance: _{21_______ , 31_______ , 41 _______ ,}

_{32 _______} , _{42 _______ ,}

Compute the portfolio weights for each component of the portfolio, i.e. find wi for i = 0,1, , 4. (Keep 1 decimal place to your answer.)

w₀ : _______ ; w₁: _______ ; w₂ : _______ ; w₃: _______ ;

Find the standard deviation of the portfolio. (Keep 4 decimal places to your answer.)

__________