Equation can be modified to compute the risk of a three-security portfolio as follows:

You have decided to invest 40 percent of your wealth in Security A, 30 percent in Security B, and 30 percent in Security C. The following information is available about the possible returns from the three securities:

Compute the expected return of the portfolio and the risk of the portfolio if the correlations between returns from the three securities are ρAB = 0.70; ρAC = 0.60; and ρBC =0.85.

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Security B Return Probability Security C Return Probability Security A Return Probability 10% 12 14 0.25 0.50 0.25 13% 16 19 0.30 0.35 0.35 14% 0.40 0.30 0.30 18