(Solved): 4. The variance/covariance matrix of two assets A and B are given as: The average annual returns to ...

4. The variance/covariance matrix of two assets $A$ and $B$ are given as: The average annual returns to two assets are $\mathrm{A}$ and $\mathrm{B}$ are .13 and .21 , respectively. The return to risk-free asset is 0.08 . a. Construct the portfolio possibilities curve (efficient frontier) by assuming no short sales and by minimizing the risk of the portfolio (GMV). Graph the efficient frontier and fine the risk and return of the portfolio. b. Construct the portfolio possibilities curve assuming that short sale is allowed. c. Graph the two curves together distinguishing them with different colors. d. Construct a portfolio that the investor tries to minimize the risk of the portfolio subject to portfolio return of the be higher than return to risk-free asset. e. Graph the efficient frontier, CAL, and find the tangency point.