Question: James is a fund manager working with a long only PMS fund in Malfives. After evaluating the company, industry and valuation attractiveness, he shortlisted 3

James is a fund manager working with a long only PMS fund in Malfives. After evaluating the company, industry and valuation attractiveness, he shortlisted 3 stocks from NSE to constitute his portfolio.

After shortlisting the stocks James was wondering about the portfolio composition. He decided to run a Markowitz optimization program to select the optimum portfolio and arrived at the optimum weights for the stocks A, B and C. After finalizing the portfolio, Sameer found the covariance matrix of the 3 stocks and the optimum portfolio to be the following:

Stock A	Stock B	Stock C	Opt port
Stock A	0.10%	0.01%	0.07%	0.04%
Stock B	0.01%	0.11%	-0.04%	0.06%
Stock C	0.07%	-0.04%	0.38%	0.07%
Opt port	0.04%	0.06%	0.07%	0.06%

The expected return of stock A (R_A) = 10.0%. The weight of A in the optimum portfolio w_A= 19.5%

Assume that risk free rate is 7%.

Find the expected return of stock B (R_B), that of stock C (R_C)and that of the optimum portfolio R_opt
Given the weight of A, find the weights of B and C in the optimum portfolio

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A From the covariance matrix we know that CovarianceAOpt Port 004 CovarianceOpt Port Opt Port Varian... View full answer

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