Consider the following Table of information:

Table: Annual return forecasts

Index components	Weight	Expected return	Variance	Correlation
Stock	75%	6.81%	0.0289	0.3
Bonds	25%	1.40%	0.0064

The average coefficient of risk-aversion of market is 3. The variance of the equilibrium model expected returns is 10% of the sample variance.

Manager's view: The manager believes that in the next month, bonds will outperform stocks by 0.5% with estimation standard error 1.73%.

a) What are the advantages of the Black-Litterman model over the Markowitz model?

b) In this model, how do you express the confidence of the manager in his/her view? How do you represent the managers view with error representation mathematically?

c) What is the posterior expectations after incorporating the managers view?