Q1)

You are planning to construct a portfolio made up of a broad market index (S&P 500) and a cryptocurrency. Four major cryptocurrencies are available in the market and they are BTC (Bitcoin), ETH (Ether), XRP (Ripple), and LTC (Litecoin). Use Table 1 and Table 2 to answer the following questions:

1. Which of these are suitable for adding to the index for diversification purposes and why? (10 points)
2. If they all are mutually exclusive (only one can be selected) then which one will you select and why? (10 points)

Table 1

	Covariance
	BTC	ETH	XRP	LTC
S&P 500	-0.00832	-0.00459	-0.005	-0.0064

Table 2

	Std. Deviation of Returns
S&P 500	12%
BTC	32%
ETH	8%
XRP	11%
LTC	17%

Q2)

Assume 1 BTC = $7,250 and 1 ETH = $341. Estimate the value of ETH in terms of Bitcoin, i.e. how many Bitcoins you will get for every ETH you have? (10 points)

Q3)

Assume 1 USD ($1) = Euro 0.95

1 BTC = $8,190

Assume, on average, BTC is assumed to grow at 5% per year for the next 4 years then what will be the value of BTC in terms of Euro in 4-years time? (15 points)

Q4)

You own a portfolio that is composed of stocks and bonds. You decided to add a cryptocurrency to the portfolio. Four major cryptocurrencies are available in the market and they are BTC (Bitcoin), ETH (Ether), XRP (Ripple), and LTC (Litecoin). You are going to allocate 10 percent of the portfolio to only one of these cryptocurrencies. Before investing the funds in a cryptocurrency, you estimated the expected return of the overall portfolio and the standard deviation of returns of the portfolio. Table 3 shows you those numbers (ER means expected return; SD means the standard deviation of returns; RF stands for the risk-free rate of return).

Which combination will to select and why? (15 points)

RF = 3%.

	ER	SD
Original Portfolio + BTC	18%	7%
Original Portfolio + ETH	21%	12%
Original Portfolio + XRP	34%	20%
Original Portfolio + LTC	15%	9%