Question 5 (8 marks) Natalie is a wealthy individual who has asked you to form a portfolio for her. She wants the portfolio to comprise a mutual fund (ABC) and two hedge funds (HDGl and HDG2). She is concerned about the riskiness of one of the hedge funds, so she wants HDG2 to have double the weight of HDGl in the portfolio. She also wants to hold 20% of her portfolio in risk-free bonds whose returns are 5%. The market portfolio has a return of 12% and a variance of 0.01. Below is information on the three funds: Covariance matrix E(r) Beta ABC HDGl HDG2 BC 0.11 0.90 0.0225 HDGl 0.45 -1.03 0.03 0.09 HDG2 0.15 0.03 -0.02 0.04 0.04 a. Natalie wants her portfolio to have an expected return of 14%. What will be the variance, standard deviation and beta of her portfolio? Give your answers to two decimal places. (7 marks) Natalie is also considering investing in an ETF which mimics the market portfolio. She would still hold 20% of her portfolio in risk-free bonds. What would be the beta of this portfolio? (1 mark)