b) Let us consider four risky assets, which have the following expected returns E(r) (Cells F3:F6) and variance-covariance matrix (S) (Cells A3:D6), and two portfolios x and y (see the Excel spreadsheet below):

i) Write down the Excel formula on how we estimated the mean and variance of portfolio x (in Cells B12 and B13) and y (in Cells E12 and E13), respectively.

ii) Estimate the correlation coefficient of portfolios x and y in Cell B15. Show your calculations.

iii) Calculate the mean portfolio return, portfolio variance, and portfolio standard deviation in Cells B19, B20 and B21, respectively. Show your calculations.

H Mean returns E(r) 6% 8% 10% 15% 0.60 B C E 1 A FOUR-ASSET PORTFOLIO PROBLEM 2 Variance-covariance, S 3 0.10 0.01 0.03 0.05 4 0.01 0.30 0.06 -0.04 5 0.03 0.06 0.40 0.02 6 0.05 -0.04 0.02 0.50 7 8 Portfolio x 0.20 0.30 0.40 0.10 9 Portfolio y 0.20 0.10 0.10 10 11 Portfolio x and y statistics: Mean, variance, covariance, correlation 12 Mean, Er] 9.1096 Mean, Ery) 12.00% 13 Variance ? 0.1216 Variance , 0.2034 14 Covariance(x,y) 0.0714 15 Correlation Pay ? Question ii 16 17 Calculating returns of combinations of Portfolio x and Portfolio y 18 Proportion of x 0.3 19 Mean portfolio return, Erp) ? 20 Portfolio variance , ? Question ili 21 Portfolio standard deviation ? Question i ? ? 2 f