Question 4) There are three type of investment in a portfolio: S&P 500 index, 10-year treasury bond index, cash invested in money market a 1-day federal fund rate. Table 1 represents S&P 500 index for retum on stocks, 10-year treasury bond index for return on bonds and cash invested in money market a 1-day federal fund rate. Table 1. S&P 500 Index, Bond Index and Money Market Year Stocks Bonds Money Market 1995 792.1 3287,3 1007,8 1996 973.9 3291,6 1055,3 1997 1346,5 3687,3 1119,5 1998 1670,1 4220,2 1165,2 1999 2011,3 3903,3 1246,5 2000 1837,4 4575,3 1313,1 (a) Calculate the geometric means of rates of return for stocks, bonds, and money market. (6 p.) (b) Calculate the covariance matrix of rates of return. (12 p.) Table 2. Covariances between rates of return of securities Covariance Stocks Bonds Money Market Stocks ? ? ? Bonds ? ? ? Money Market