Suppose in the market there are three stocks with the following information and the CAPM holds....

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Suppose in the market there are three stocks with the following information and the CAPM holds. Assume risk-free rate is 4% and the variance of the market portfolio is 0.04. Stocks Expected Return 19% A B 14% с 9% Beta ; Idiosyncratic Risk² ² €2 1.5 1.0 0.5 0.05 0.06 0.08 (a) Find the variance-covariance matrix Σ associated with the three stocks. (b) Write down the formulas in order to find the tangency portfolio associated with the three stocks. (Remark: this tangency portfolio is only constructed using the three stocks, and therefore not the market portfolio mentioned above.) Suppose in the market there are three stocks with the following information and the CAPM holds. Assume risk-free rate is 4% and the variance of the market portfolio is 0.04. Stocks Expected Return 19% A B 14% с 9% Beta ; Idiosyncratic Risk² ² €2 1.5 1.0 0.5 0.05 0.06 0.08 (a) Find the variance-covariance matrix Σ associated with the three stocks. (b) Write down the formulas in order to find the tangency portfolio associated with the three stocks. (Remark: this tangency portfolio is only constructed using the three stocks, and therefore not the market portfolio mentioned above.)

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a Find the variance c ov ari ance matrix associated with the three stocks ANS WER 0 04 1 5 1 0 5 1 1 0 5 0 5 0 5 0 25 WORK ING WITH EX PL AN ATION The ... View the full answer