Answer the questions in the attach file in both Excel and Word form :

a. Using the Single-Index Model (where the returns on each fund are related only to the market, i.e., E(r) = α +β E(RM)), determine the expected returns, variance and standard deviations for each fund.

b. What information is contained in the variance-covariance matrix? How is this information relevant for portfolio formation?

c. Generate a variance-covariance matrix for the five funds presented above.

d. Rank the two asset combinations (best to worst) in terms of portfolio risk reduction. Explain your results.

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