Question 5 (20 points) An economy contains 20 assets. For each asset, the expected return is 10% and the variance of returns is 0.5. In addition, the covariance of returns between any pair of assets is 0.15. Minimum-variance portfolio M has E[r] -0.10 and 0 - 10.1675 - 0.409. A risk-free asset exists which can be loaned at 5% and borrowed at 7% (a) What is the standard deviation of returns for a portfolio with 20% invested in each of 4 assets, and 4% invested in each of another 5 assets? (b) What additional expected return could be obtained from switching from the portfolio in (a) to a "passive" portfolio with the same total risk? [Here, a "passive" portfolio is to be interpreted as a combination of the risk-free asset and the minimum-variance portfolio of risky assets) Question 5 (20 points) An economy contains 20 assets. For each asset, the expected return is 10% and the variance of returns is 0.5. In addition, the covariance of returns between any pair of assets is 0.15. Minimum-variance portfolio M has E[r] -0.10 and 0 - 10.1675 - 0.409. A risk-free asset exists which can be loaned at 5% and borrowed at 7% (a) What is the standard deviation of returns for a portfolio with 20% invested in each of 4 assets, and 4% invested in each of another 5 assets? (b) What additional expected return could be obtained from switching from the portfolio in (a) to a "passive" portfolio with the same total risk? [Here, a "passive" portfolio is to be interpreted as a combination of the risk-free asset and the minimum-variance portfolio of risky assets)