1) a. You approach your broker to borrow money against securities held in your portfolio. Even though the loan will be secured by the securities in your portfolio, the broker's rate for lending to customers is 5 percent. Assuming a risk-free rate of 4 percent and an expected market return of 11 percent with a standard deviation of 15 percent, draw the capital market line related to your investment opportunities. b. Estimate your expected return and risk if you invest 20 percent of your portfolio in the risk-free asset. What if you decide to borrow 20 percent of your initial wealth and invest the money in the market? 2) a. Assuming that the risk (standard deviation) of the market is 22 percent, calculate the beta for the following assets: - A short-term U.S. Treasury bill - Gold, which has a standard deviation equal to the standard deviation of the market but a zero correlation with the market - A new emerging market that is not currently included in the definition of "market"-the emerging market's standard deviation is 55 percent, and the correlation with the market is -0.2 - An initial public offering or new issue of stock with a standard deviation of 30 percent and a correlation with the market of 0.5 (IPOs are usually risky but have a relatively low correlation with the market) b. Suppose an investor allocates 15% of her wealth to T-bills, another 25% to gold, 30% to the emerging market and the rest to the initial public offering. If the expected market return is 13% and the risk-free rate is 3%, calculate the expected return of the investor's portfolio. 3) a. Describe the systematic and nonsystematic risk components of the following assets: - A risk-free asset, such as a three-month Treasury bill - The market portfolio, such as the S&P 500, with total risk of 20 percent b. Consider two assets, A and B. Asset A has total risk of 26 percent, half of which is nonsystematic risk. Asset B has total risk of 16 percent, all of which is systematic risk. Which asset should have a higher expected rate of return