Assignment 10 – Portfolios and Diversification
Please complete on EXCEL Spread Sheet Consider the following two funds and their estimated returns under different states
of the economy:
State of
economy
Great
Average
Poor Probability Estimated Return (Fund A) Estimated Return (Fund B) 30%
30%
40% 10%
15%
20% 25%
11%
15% Calculate the following:
a. Expected return for fund A and for fund B
b. Standard deviation of returns for fund A and fund B
c. Covariance between returns of fund A and fund B
d. Correlation between returns of fund A and fund B
If you invest $2,000 in Fund A and $8,000 in Fund B, Calculate the following:
e. Portfolios’ Expected Return
f. Portfolio’s Standard Deviation
Bonus 1:
Construct the complete covariance matrix for A & B
Construct the complete correlation matrix for A & B
Bonus 2:
Find the minimum variance portfolio using solver and report standard deviation and expected
return.

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