Portfolio 1	Portfolio 2	Portfolio 3	Portfolio 4	Portfolio 5
Correlation	0.1	0.3	0.55	0.68	-0.5

Returns characteristics of MBS and equities are as follows

Expected return from MBS	0.15
Expected return from equity	0.28
Standard deviation of MBS returns	0.21
Standard deviation of Equity returns	0.3

b) With the goal of maximizing Sharpe ratio, complete the following table

	Portfolio 1	Portfolio 2	Portfolio 3	Portfolio 4	Portfolio 5
Covariance (MBS returns, equities return)
Optimal weight of MBS
Optimal weight of equities
Expected return
Standard deviation of portfolio returns
Sharpe ratio

(5 points)

c) In both tables above, which portfolio does provide the highest Sharpe ratio? Explain why. (5 points)