QUESTION 4 Using the following information to answer Question 4 and 5. A risk-averse client approaches you for investment advice. You have information on several possible investments as laid out in the table below. A, B, C and are individual risky securities. F is the risk-free asset returning 69 p.a. M is the market portfolio. This is a perfect market with no taxes or other frictions, and the prices given are equilibrium prices. All returns are annual returns. Correlation Matrix Investment E(R) Std Dev B D 0.14 0.3 0.7 0.6 0.2 0.5 0.11 0.25 1 0.6 0.17 0.3 A M 1 B 0.5 0.3 1 0.4 D 0.13 0.32 1 0.3 M 0.165 0.26 1 a) Your client wants to form a portfolio (Portfolio 1) by investing 40% of the investment in Security A and 60% in Security B. Calculate the expected return of this portfolio (State your answers in percentage) Calculate the risk of this portfolio - (State your answers in percentage) b) What is the maximum Sharpe Ratio that you can achieve in this market? Sharp Ratio - Calculate the risk of this portfolio (State your answers in percentage) b) What is the maximum Sharpe Ratio that you can achieve in this market? Sharp Ratio - (Round to two decimal places) QUESTION 5 (Carrying on the information from Question 4) Assume you are holding the portfolio as in Question 4 part (a). Would you benefit from including asset Dinto your current portfolio? Briefly Explain. TT T Arial 3 (12pt) T.EE