Ms. X gave you $10,000 as a graduation gift. You dont need this money immediately. Therefore, you decide to invest it in the stock market. Using the methods you learned in investment analysis course, you identified the following three stocks: Birds Co., Butterflies Inc., and Flowers Corp. The variance-covariance matrix of these stocks and the market portfolio are as follows:

	Birds Co.	Butterflies Inc.	Flowers Corp.	Market
Birds Co.	179
Butterflies Inc.	112	155
Flowers Corp.	211	10	312
Market	115	250	150	225

You decided to short sell $10,000 worth of Butterflies stocks and equally invest all of our money in the Birds and Flowers stocks.

a. What is the standard deviation of the returns on your portfolio?

b. Assume that CAPM holds. What is the expected rate of return on your portfolio if the risk-free rate is 5% and the expected rate of return on market portfolio is 12%? These stocks are not efficient portfolios.

c. You decided to combine your portfolio with the risk-free asset offering a return of 5%. If you want to form a new portfolio with a standard deviation of 25%, calculate the weights to be allocated to the risky portfolio and risk-free asset. Show weights of Birds, Butterflies and Flowers in the complete portfolio. What is the expected rate of return on this new portfolio?