Question

Indicate whether each of the following matrices is a valid variance-covariance matrix for the three assets P, Q, and R. For all cases, write down the reason why the matrix is or is not a valid variance-covariance matrix. (no marks for not providing full explanation, 3 marks each).

1

0.32	0.14	0.25
0.14	0.23	0.02
0.25	0.02	-0.04

2

1.98	0.21	0.04
0.21	0.90	0.01
0.04	0.01	0.30

3

0.18	-0.03	0.00
-0.03	0.04	0.00
0.00	0.00	0.10

4

0.16	-0.01	0.11
-0.01	0.09	-0.14
0.22	-0.14	0.04

5

0.02	0.08	0.03
0.08	0.02	0.07
0.03	0.07	0.02

Answer 1

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