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Variance-Covariance matrix Stock H Stock I Stock J Stock H 0.0169 Stock I 0.0026 0.0400 Stock J 0.0156 0.0090 0.0225 Use the following information to

Variance-Covariance matrix

Stock H

Stock I

Stock J

Stock H

0.0169

Stock I

0.0026

0.0400

Stock J

0.0156

0.0090

0.0225

Use the following information to answer the questions.

You form two portfolios. You form Portfolio A by investing $2,000 in Stock H and $8,000 in Stock I while you form Portfolio B by investing $4,000 in Stock I and $6,000 in Stock J.

  1. Given expected returns of 0.06, 0.10, and 0.12 for Stocks H, I, and J respectively, Figure out the expected return for Portfolios A and B.
  2. Figure out the variance for Portfolios A and B.
  3. Given the risk free rate of 0.04, figure out the Sharpe ratio for Portfolios A and B. Which portfolio is better based on the Sharpe ratio?

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