1. Let denote A=Coca Cola, B=NRG and C=IBM. Let rA denotes the return of Coca Cola stock, rB denotes the return of NRG stock and rC denotes the return of IBM stock, respectively; A2 denotes the variance of return of Coca Cola, B2 denotes the variance of return of NRG and C2 denotes the variance of return of IBM, respectively.

We consider the following FOUR possible portfolios:

Portfolio 1: 30% stock A and 70% stock B;

Portfolio 2: 50% stock B and 50% stock C;

Portfolio 3: 70% stock A and 30% Treasury Bill;

Portfolio 4: 65% stock A and 30% stock C and 5% Treasury Bill (Let assume Treasury Bill is independent of other three stocks, independent means theres no relationship between Treasury Bill and other stocks);

2. Derive the expected value and variance of all four portfolios (show all workings); For example,

E(Portfolio 9) =E(axA + cxC), = E(axA) + E(cxC ),

= aE(xA) + cE(xC ).

3. Compute the expected value of returns for all four portfolios.

4. Compute the variances of returns for all four portfolios.

5. Suppose that you are a financial advisor, write a short report (no more than 1 page) about investment options in terms of returns and risk.