1) a portfolio consists of three assets. Asset 1 has a beta of 0.85. Asset 2 has a beta of 1.3. Asset 3 has a beta of 0.9. Asset 1 has an allocation of 50 percent, while asset 2 and 3 have allocation of 25 percent. The variance of returns on a market index, , is 120. Calculate the variance of portfolio returns, assuming that the specific risk of the portfolio is negligible. (Please show your calculations).

2) A Canadian investor is considering the purchase of U.K. securities. The current exchange rate is Can$1.46 per pound. Assume that the price level of a typical consumption basket in Canada is 1.46 times the price level of a typical consumption basket in the United Kingdom. a. Calculate the real exchange rate. b. One year later, price levels in Canada have risen 2 percent, while price levels in tin United Kingdom have risen 4 percent. The new exchange rate is Can$ 1.4308 per pound. What is the new real exchange rate? c. Did the Canadian investor experience a change in the real exchange rate?