3. Assume an investor's universe consists of three stocks, Stock 1, 2 and 3. The return of each stock is denoted as n where i 1,2,3. The weight of each stock in the market portfolio is denoted as w. The standard deviation of each stock is o and lastly, the covariance between two stocks is given by ou. Let w be a 3 x 1 matrix of weights and be a 3 x 3 variance-covariance matrix. a) Show that the variance of the market portfolio of = w'Ew is given by the expression below. of = wo? + wo + wo} +2(W;W2012 + W;W301,3 + W;W3023) b) Confirm that r = w'r = win = win + wyra + wys. Also note that the covariance between the return of asset i and the market (which consists of these three assets) is given by Covri, PM) = M = Cov(W111 + Wz?2+W373) Using the above show that the market variance of = WOM c) What is the relationship between om and of? Can we think of the ratio of as the contribution of a stock to the risk of the market portfolio