You are allowed to use excel thanks.

2. 2.a Assume that you can either invest all of your wealth in one of two securities, 1 and 2, or some proportion of your wealth in each. The rates of return have the following first two moments: Assume that the returns of the two securities have zero correlation and that you place proportion w of your wealth in security 1 and 1-w of your wealth in security 2. Calculate the expected returns and the standard devi- ations of the following portfolios. Security 1 2 Expected Return 20% 10% Standard Deviation 15% 12% Case i ii w 1.00 0.75 0.50 0.25 0.00 (1 w) 0.00 0.25 0.50 0.75 1.00 iv V 2.b Plot your results from part (a) on a graph with the portfolio's expected rate of return on the vertical axis and the standard deviation of the portfolio's return on the horizontal axis. Sketch the expected return as a function of the volatility (o) for the range of portfolio compositions where w ranges from 0 to 1. 2.c Given the following variance/covariance matrix for assets 1, 2 and 3, calculate the three cross-correlations between the assets (i.e., P12, P23, P13). 1 2 3 1 0.15 0.05 0.10 2 0.05 0.20 0.08 3 0.10 0.08 0.25