1. Let denote A=Coca Cola, B=NRG and C=IBM. Let rA denotes the return of Coca Cola stock, rB denotes the return of NRG s

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1. Let denote A=Coca Cola, B=NRG and C=IBM. Let rA denotes the
return of Coca Cola stock, rB denotes the return of NRG stock and
rC denotes the return of IBM stock, respectively; A2 denotes the
variance of return of Coca Cola, B2 denotes the variance of return
of NRG and C2 denotes the variance of return of IBM,
respectively.
We consider the following FOUR possible portfolios:
Portfolio 1: 30% stock A and 70% stock B;
Portfolio 2: 50% stock B and 50% stock C;
Portfolio 3: 70% stock A and 30% Treasury Bill;
Portfolio 4: 65% stock A and 30% stock C and 5% Treasury Bill
(Let assume Treasury Bill is independent of other three stocks,
”independent” means there’s no relationship between Treasury Bill
and other stocks);
2. Derive the expected value and variance of all four portfolios
(show all workings); For example,
E(Portfolio 9) =E(axA + cxC),

= E(axA) + E(cxC ),
= aE(xA) + cE(xC ).
3. Compute the expected value of returns for all four
portfolios.
4. Compute the variances of returns for all four portfolios.
5. Suppose that you are a financial advisor, write a short
report (no more than 1 page) about investment options in terms of
returns and risk.