The market has three risky assets. The variance-covariance matrix of the risky assets are as follows.

3. The market has three risky assets. The variance-covariance matrix of the risky assets are as follows. ri T2 13 ri 0.25 0 -0.2 T2 0 4 0.1 13 -0.2 0.1 1 Assume the market portfolio is M 0.2 ori + 0.5 0 r2 + 0.3 0 13. Further assume E(TM) = 0.08. (a) What is the variance of M? (b) What is the covariance of ra and M? r2 (c) What is B2? (d) If the rate of return of the risk-free asset is 0.02. Then what is the fair expected rate of return of security 2? (e) An investor wants to invest in a portfolio P = 0.40r +0.6 orz. What is its "fair" expected rate of return? 3. The market has three risky assets. The variance-covariance matrix of the risky assets are as follows. ri T2 13 ri 0.25 0 -0.2 T2 0 4 0.1 13 -0.2 0.1 1 Assume the market portfolio is M 0.2 ori + 0.5 0 r2 + 0.3 0 13. Further assume E(TM) = 0.08. (a) What is the variance of M? (b) What is the covariance of ra and M? r2 (c) What is B2? (d) If the rate of return of the risk-free asset is 0.02. Then what is the fair expected rate of return of security 2? (e) An investor wants to invest in a portfolio P = 0.40r +0.6 orz. What is its "fair" expected rate of return