Problem 29

Intro

You found the following covariance matrix for 3 stocks:

	C	D	E	F
1		Amazon	Exxon	Walmart
2	Amazon	0.059	0.025	0.019
3	Exxon	0.025	0.044	0.0092
4	Walmart	0.019	0.0092	0.064

Attempt 1/10 for 10 pts.

Part 1

Add the border-multiplied covariance matrix, i.e., the covariance matrix bordered by the portfolio weights, below the table. What is the variance of the equally-weighted portfolio?

Attempt 1/10 for 12 pts.

Part 2

You did extensive security research and came up with the following annual expected returns:

E(r_A) = 0.07 E(r_E) = 0.06 E(r_W) = 0.05

What is the expected return of the equally-weighted portfolio? Use Excel's SUMPRODUCT() function.

Attempt 1/10 for 10 pts.

Part 3

What is the variance of the portfolio with the following weights?

w_A = 0.4 w_E = 0.25 w_W = 0.35