Suppose that in this particular economy, there are four assets. Assets 1, 2, and 3 are risky and the fourth asset is risk-free.

The correlations of returns are described in the following table:

Correlation	Stock 1	Stock 2	Stock 3
Stock 1	1	0.6	0.7
Stock 2	0.6	1	0.2
Stock 3	0.7	0.2	1

And the standard deviation of the return of each stock is:

Stock 1	0.3
Stock 2	0.6
Stock 3	0.25

Finally, the number of shares and price of each stock is:

	Price	Number of Shares
Stock 1	$10	100
Stock 2	$15	200
Stock 3	$10	200

1. Construct the variance-covariance matrix for the returns of the three risky assets.

2. Compute the weights of the market portfolio. That is, show that the weight of stock 1 in the market portfolio is 1/6, the weight of stock 2 is 3/6 and the weight of stock 3 is 2/6.

3. If CAPM assumptions hold, compute the investors optimal risky portfolio.