# Question: consider the scenario below to answer 31 and 32 the...

###### Question details

Consider the scenario below to answer 3.1 and 3.2:

The correlation between A and B is 0.5

The correlation between A and C is 0.4

The correlation between B and C is -0.3

**[3.1, Mark 1]** What would be the variance of a portfolio which allocates 0.5 to A, 0.3 to B, and 0.2 to C? Show your calculations.

**[3.2, Mark 2]** Rank A, B and C in increasing order based on their contribution to the overall portfolio variance. Justify your answer.

**[3.3, Mark 2]** Three assets are available to you X, Y and Z. “w” denotes the vector of weights and “V” denotes the covariance matrix. Write down the optimization problem to find the minimum variance portfolio under the constraint that no more than 5% of the portfolio is allocated to either X or Z.