Question

A market consists of four risky assets with the following characteristics: Asset 1: Mean return = 5, Risk (i.e, Standard Deviation) = 10 Asset 2: Mean return = 10, Risk = 20 Asset 3: Mean return = 15, Risk = 30 Asset 4: Mean return = 20, Risk = 40 The returns of Asset 1 have 20% correlation with returns of all the other assets. The returns of Asset 2 have 10% correlation with returns of Asset 3 and Asset 4. The returns of the other two assets are mutually independent.1. Calculate and write down the variance-covariance matrix of the 4 risky assets. 2.Calculate and write down the Lagrangian function used for the portfolio optimization procedure. 3.Write down the 4+2 equation system used for the portfolio optimization procedure 4. From part 3, translate the 4+2 equation system into the matrix form: ?? = ?, and write down the coefficient matrix ?, the unknown vector ?, and the vector ?, respectively

Answer 1