Financial calculators are NOT allowed.

(c) An investor's portfolio is given by the following: Z = 4P1-9P2 where P is the price of asset i. Calculate the variance of this portfolio if EP1 5, EPo = 7,EP-30, EPS = 52 and the assets have a correlation coefficient of 0.6 18 marks] (d) Explain the agent's optimal hedge position (relative to output) under forward contracts if the expected spot price of the underlying asset is: (i) greater than the forward price 3 marks] (ii) less than the forward price 13 marks] (c) An investor's portfolio is given by the following: Z = 4P1-9P2 where P is the price of asset i. Calculate the variance of this portfolio if EP1 5, EPo = 7,EP-30, EPS = 52 and the assets have a correlation coefficient of 0.6 18 marks] (d) Explain the agent's optimal hedge position (relative to output) under forward contracts if the expected spot price of the underlying asset is: (i) greater than the forward price 3 marks] (ii) less than the forward price 13 marks]