5. Given the following expected return vector and variance-covariance ma- trix for three assets: 10.1 210 60 U ,u = 7.8 and I' = 60 90 U , 5.0 U U U
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point a to c

5. Given the following expected return vector and variance-covariance ma-
trix for three assets: 10.1 210 60 U
,u = 7.8 and I‘ = 60 90 U ,
5.0 U U U and given the fact that Pie Traynor’s risky portfolio is split 50—50 be-
tween two risky assets: (a) 1iWhich security of the three must be the risk-free asset? ‘Why? (b) Calculate the expected return and standard deviation of Pie’s
portfolio. (c) If the riskfree asset makes up 25% of Pie’s total portfolio, what is
the total portfolio expected return and standard deviation?

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