Consider a simple universe of bonds and stocks. The current market values of outstand bonds and stocks are $42 million and $87 million, respectively. Based on historical data, the covariance matrix per month is given by: Bonds Stocks Bonds 0.0089 0.00512 Stocks 0.00512 0.0321 In addition, suppose that the risk aversion coefficient is = 3 and the risk free rate is 3.4%. a. List the input data needed to perform the Black-Litterman procedure to calculate the optimum portfolio weights. Contrast the data requirements with the Markowitz framework. (4 marks) b. Estimate the weights of stocks and bonds in the market portfolio. Use the Black Litterman approach, estimate the expected returns of bonds and stocks, as implied by the market equilibrium. (4 marks) c. Explain how the Black-Litterman approach seeks to overcome the problem of the Markowitz mean-variance approach to optimal portfolio allocation. (4 marks) d. Explain how the James Stein method can overcome the problem of Markowitz mean variance approach to optimal portfolio allocation. (3 marks) Consider a simple universe of bonds and stocks. The current market values of outstand bonds and stocks are $42 million and $87 million, respectively. Based on historical data, the covariance matrix per month is given by: Bonds Stocks Bonds 0.0089 0.00512 Stocks 0.00512 0.0321 In addition, suppose that the risk aversion coefficient is = 3 and the risk free rate is 3.4%. a. List the input data needed to perform the Black-Litterman procedure to calculate the optimum portfolio weights. Contrast the data requirements with the Markowitz framework. (4 marks) b. Estimate the weights of stocks and bonds in the market portfolio. Use the Black Litterman approach, estimate the expected returns of bonds and stocks, as implied by the market equilibrium. (4 marks) c. Explain how the Black-Litterman approach seeks to overcome the problem of the Markowitz mean-variance approach to optimal portfolio allocation. (4 marks) d. Explain how the James Stein method can overcome the problem of Markowitz mean variance approach to optimal portfolio allocation