1. (20pts) Suppose there are 3 risky assets with the following betas and standard deviations of relative to the tangency portfolio. Suppose the tangency portfolio for the 3 assets has a mean and standard deviation of um = .055 and om = .065, and the fixed rate of return is .010. j B oer 1 0.7 .030 2 0.9 .045 3 1.1 .060 (a) Derive the standard deviations of the returns from assets 1, 2, and 3. (b) Derive the means of the returns from assets 1, 2, and 3. (c) Derive the covariances and correlations between assets 2 and 3 assuming errors are independent. (d) Derive mean and variance of equally weighted portfolio? (e) Choosing between the equally weighted portfolio and a portfolio totally invested in asset 2, which would you prefer and clearly specify your reasoning. 1. (20pts) Suppose there are 3 risky assets with the following betas and standard deviations , relative to the tangency portfolio. Suppose the tangency portfolio for the 3 assets has a mean and standard deviation of um = .055 and om = .065, and the fixed rate of return is .010. jBjo 1 0.7 | .030 2 0.9 .045 3 1.1 .060 (a) Derive the standard deviations of the returns from assets 1, 2, and 3. (b) Derive the means of the returns from assets 1, 2, and 3. (c) Derive the covariances and correlations between assets 2 and 3 assuming errors are independent. (d) Derive mean and variance of equally weighted portfolio? (e) Choosing between the equally weighted portfolio and a portfolio totally invested in asset 2, which would you prefer and clearly specify your reasoning