There are three projects with rate of return r1, r2, and r3, respectively. The covariance matrix and the expected rates of return are
. 01 .005 0 0.04
Σ = . 005 .01 .005 , ? = 0.08
0 .005 .01 0.08
a. Find the feasible set and the efficient frontier generated by these three projects.
b. If there is a risk-free asset with rate = 0.02, find now the feasible set and the efficient frontier. What are the efficient proportions of wealth invested in the projects if you don't borrow or lend? Do the relative proportions in the three projects change if you borrow 10% of your wealth?