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Question 1: Asset class US Stocks US Bonds US real Estate US T-Bills Return 12% 8% 12% 4% Standard deviation 21% 10.50% 9% 0% Correlation Matrix US Real US Stocks US Bonds US T bills Estate 1 (0.03) (0.04) (0.03) 1 (0.05) (0.03) 0.25 1 Explain the effect on both portfolio risk and return that would result from the addition of U.S. real estate. Include in your answer two reasons for any change you expect in portfolio risk. (Note: it is not necessary to compute expected risk and return). Question2: Type Price (PV) Weight Duration US Treasury bill 19,192.00 0.09 1 Corporate Bond (rated Aaa 60,359.21 0.28 5.74 Corporate Bond (rated Ba) 22,082.10 0.10 5.9 Corporate Bond (rated A) 39,753.20 0.18 3.89 Cash 75,386.79 0.35 Total 216,773.30 1 3 If your friend has an investment horizon of 3 years and wants to sell the port-folio at that time to use the principal + interest, what recommendations would you make regarding the composition of the portfolio