This question requires you to calculate, compare and discuss two portfolios construction techniques (i) an Equal-DollarWeighted portfolio and (ii) a Risk Parity portfolio.

a)What are Risk Parity portfolio and how is this portfoliodifferent from an Equal-Dollar weighted portfolio? Your answer should focus on the exposure to the asset classes in the portfolio?

b)Calculate the volatility and return of an Equal-Dollar weighted portfolio that is invested 50% in US equities and 50% in Emerging market equities. Use the information (based on a 20 year period) provided below(all figures are in annual terms):

MSCI EM Covariance RUSSELL 3000 MSCI EM RUSSELL 3000 0.02796 0.03144 0.0576 RUSSELL 3000 MSCI EM Average Return 0.105 0.146 MSCI EM Covariance RUSSELL 3000 MSCI EM RUSSELL 3000 0.02796 0.03144 0.0576 RUSSELL 3000 MSCI EM Average Return 0.105 0.146