Consider the expected return and standard deviation of the following two assets:

Asset 1: E[r1]=0.1 and sigma1=0.2

Asset 2: E[r2]=0.3 and sigma2=0.4

(a) Draw (e.g. with Excel) the set of achievable portfolios in mean-standard deviation space for the cases: (i) rho12=-1, (ii) rho12=0.

(b) Suppose sigma12=-1. Which portfolio has the minimal variance? What is the variance and expected return of that portfolio?

(c) Derive the formula for the variance of a portfolio with four assets.