Question 22

Variance-covariance matrix S $1 S2 $3 S1 0.00090 0.00047 0.00054 S2 0.00047 0.00123 0.00003 S3 0.00054 0.00003 0.00130 Now that you have filled the S matrix, follow the matrix solution procedure discussed in Module 6 to obtain the optimal portfolio P*. Enter the weights obtained for each of the securities, with three decimal places. Inverse of the Variance-Covariance Matrix Excess Return Vector Z Vector Optimal Portfolio R - Rf Z weights, w W s1 W $2 W $3 Sum 0.000 Enter the Sharpe ratio for P*, with two decimal places. Hint: recall that Expected return of a portfolio is the weighted average of the expected returns, and variance of a portfolio = WT.S.w, where w is the (column) vector of portfolio weights and wT is its transpose. Expected return of P* Variance of P* o of P* Sharpe ratio for P*