Consider a 1-period model and three securities: S1, S2, S3 with expected returns 0.041, 0.056, 0.069, standard deviations 0.026, 0.029, 0.051 and correlation coefficients _12=0.86, _13=-0.26, _23=0.16

1. Determine the covariance matrix.

2. Investor wishes to invest only in S1 and S2, so weight w3 = 0. For weights w1 = -0.5, -0.4, ..., +1.5 and corresponding weight w2, tabulate expected portfolio return mu and standard deviation sigma. Then plot these as points in a sigma-mu diagram.