You are eager to impress so you send the results to your new boss just before you leave for your lunch break. Upon your return, the boss has looked at your report and notes that the risk of the portfolio is a little higher than she expected and wondered if adding an additional asset would help reduce the risk. Knowing all about diversification, you suggest that maybe adding an asset that has a low correlation with the existing 
ve asset classes might help. You have heard many stories about commodities being great diversifiers and so you offer to investigate the effects of adding various commodities to the asset mix. Using the additional index data in the Excel spreadsheet (oil, gold, and copper), perform the following tasks:

2. (a) Using the same methodology as in Question 1, determine which one commodity, when added to the five asset classes (giving a total of six assets), would result in the largest risk reduction of the 14% returning efficient portfolio. (Warning: choose wisely since if you do not choose the correct commodity you will receive a mark of zero for Q2!)

(b) Report the vector of (annual) expected returns and the variance-covariance matrix for the five asset classes plus your chosen commodity (i.e., six assets in total).

(c) Compute and report the new A, B, C and delta parameters for this six asset portfolio.

(d) Construct and plot the new MVS (with short sales allowed) for expected (annual) returns ranging between 0% and 25%. You should also plot the MVS from 1.(e) for

comparison and indicate the positions of the five asset classes and your chosen commodity.

(e) Determine and report the new portfolio weights for the efficient portfolio with 14% expected return.

(f) Report the reduction in risk of the 14% returning efficient portfolio that can be achieved by adding your chosen commodity to the portfolio. (Remember this should be larger than for the other two commodities that were not chosen.