3. The risk-free rate is 1% and there are three stocks that you can invest in with the following E(r) and :

E(r)

Stock A .11 .29

Stock B .09 .21

Stock C .13 .32

The pair-wise correlation coefficients are _AB = .25, _BC = .35, _AC = .40

In addition to the stocks A,B,C you can also invest in the following portfolios as follows:

Portfolio Weights

A B C

Portfolio 1: 50% 50% 0%

Portfolio 2: 50% 0% 50%

Portfolio 3: 0% 50% 50%

(a) Construct a table showing the E(r) and for each of the six investments.

(b) Carefully graph the six investment choices from questions on a plot with E(r) as the y axis and as the x axis.